Hello everyone. Today I welcome Katherine to The Green Swan with a contributed post on benefits of reverse mortgages. As one who hasn’t had much of an appreciation for reverse mortgages, I was surprised to hear some of the benefits, but I can see how they do make financial sense for some folks.
So without further ado, let’s hear from Katherine…
Reversed mortgages have an interesting reputation. People think they are somehow less legitimate than a traditional mortgage or that they are detrimental to homeowners. This couldn’t be further from the truth. In fact, reverse mortgages are one of the few types of financial transactions that have federally mandated financial counseling that go along with funding for an home equity conversion mortgage (HECM).
One of the easiest ways to understand the benefits and advantages of the various types of reversed mortgages available to consumers is to first better understand who these types of mortgages are best for. Companies that specialize in these types of loans, such as ReverseMortgages.com, offer some of the best information on the topic.
Who is Eligible?
The eligibility rules for an FHA HECM require the borrower be a homeowner aged 62 or older who owns their home outright or who has a mortgage balance which is low enough to be paid off at the time of closing with the reversed mortgage. The homeowner must also have the recurring financial resources to continue to pay home insurance and property taxes and they must live within the home the mortgage will be applied to. Additionally, it is necessary for anyone applying for this type of loan to work with an official HECM counselor. An exciting development in the field of HECM reverse mortgages was the recent increase in the loan limit. This represents the first increase in a number of years.
The eligibility rules for a private reverse mortgage are slightly different but the outline is generally the same despite the lender. However, private lenders don’t usually require counseling although the borrower may consult with a financial counselor if they so desire.
Aging in Place
A reverse mortgage can be an excellent option for older homeowners who have made the decision to age in place. This can be difficult in many instances as the home may need modifications in order to make it more comfortable as the owners age. Owners can use some of the funds from their reverse mortgage to pay for home upgrades which will make it possible for them to create a space that is functional for them without having to move away from a neighborhood to which they have become attached.
Some of the upgrades homeowners may want to consider include accessibility modifications to the bathrooms and entrances. Bathrooms become harder to navigate with aging bodies. While many of those considering a reverse mortgage at the lower end of eligibility may not need all the modifications at this moment, they will be valuable investments for future decades.
Some of the most important upgrades to consider are located in this room. Bathtubs, especially in older homes, are often slick and require careful balance to enter and exit. One way to make bathing easier and more enjoyable is to convert an older bathtub unit into a walk-in shower with a bench. Toilets should be upgraded to handicapped versions which are higher off the ground. Additionally, handrails can be installed near and in the shower and near the toilet to ensure the homeowners have the support they need.
Entrances are another area which may need to be upgraded, especially if there are steps. Adding a ramp with handrails can make entering and exiting the home far easier and safer than the original steps. If the dwelling is made up of multiple stories, a chair lift up the stairs or one of the minimally invasive elevators may also be beneficial.
Utilizing the Funds
One of the important things about reverse mortgages of all types which people may not be aware is it is possible to pull the money out as it is needed rather than taking it all out in one lump sum. This is great for borrowers who don’t have an immediate need for the money but who are planning for their future needs. It provides the security of knowing the funds are available without any additional paperwork in the future.
This also allows for the possibility that future renovations or repairs may be needed which have yet to be considered. The balance of the reverse mortgage can also serve as an emergency fund alternative if something unrelated to the house comes up.
Reverse mortgages are ideal for many people. It simply takes having an open mind and a willingness to learn more about the process.