It’s not uncommon that I get questions about why a senior may want to use a reverse mortgage to pay off an existing conventional mortgage loan. This scenario would vary from person to person, but in the long run, if the equity in the home can eliminate a mortgage payment without acquiring another loan payment, it’s often a win-win.
A reverse mortgage is essentially a home equity loan in which the borrower is not required to make payments. The homeowner must be at least 62 years old and meet certain income and credit guidelines. Although a reverse mortgage does accrue interest, it does not have to be repaid until the last borrower passes away or leaves the home permanently. Almost all of these loans are FHA insured. There are certain things like property taxes and HOA fees that the homeowner will still be responsible for.
Here is a scenario:
Barbara is a 75-year-old widow with a house worth $495,000. She still owes $125,000 on her conventional mortgage, with no other mortgage debt such as a HELOC.
Based on her age and the home’s value, she can get a reverse mortgage that would not only pay off her mortgage but give her extra funds as well that could be accessed via a line-of-credit.
She could live mortgage payment free for the remainder of her time in the home.
A common question with reverse mortgages is who technically owns the home? The borrower does. They will retain the title and can make modifications or upgrades to the home.
In addition, this is a great option for eliminating a HELOC (home equity lines of credit).
Jan Jordan is a Reverse Mortgage Specialist serving the Fort Collins, Loveland, Greeley, Longmont, Boulder and other Front Range areas of Colorado. Click here to contact Jan and learn if reverse mortgage is right for you.