The divorce rate is rising in the older generation, and this tends to bring up a lot of financial questions and concerns. Many of those who are getting divorced want to know more about getting a reverse mortgage and whether it might be a good idea while going through a divorce or not.
What Is a Reverse Mortgage?
Although most people have heard the term before, not everyone truly understands what a reverse mortgage is or how it truly works. It’s important to have a good understanding of these types of mortgages before you can start to determine whether they are right for you or not.
A reverse mortgage is a type of loan that is available for seniors who are 62 years old or older. Most of the time, these loans are set up as lines of credit, allowing you to take money when you need it. In some cases, it’s possible to have all of the money provided to you at once. The option you choose would depend on the situation.
The borrowers would not have to make a monthly payment on the loan. However, they do still need to make sure that they are taking care of things like their property taxes, their insurance, and HOA if they have one. They never have to make a payment on the reverse mortgage unless the entire loan becomes due.
What Could Cause the Reverse Mortgage to Become Payable?
There are a few things that might cause repayment of the loan.
If you leave the house due to moving out for more than a year, or if you pass away, it can become payable. If you didn’t pay your taxes or insurance, it would become payable, as well. Also, if you allow liens to be placed on the property or if you transfer the title without telling anyone, the loan could become payable, as well.
As long as you are living in the home as your primary residents, paying the taxes, and keeping up with insurance, there shouldn’t be an issue. There is no time limit on the loan, and it doesn’t matter if the value of the home were to drop.
Something important to note about reverse mortgages is that you do not need to own the home outright to get one. Most of the reverse mortgages that happen are on properties where people still have a mortgage and are paying. One of the main reasons they get the reverse mortgage is so that they can eliminate the mortgage payment.
Several factors will determine how much you can borrow, such as your age and the value of your home. The exact amount that a person can receive will naturally vary from one situation to the next.
One of the other questions that people often have with reverse mortgages is whether they still own their homes. Fortunately, you do still own the property. You can opt to sell the home and keep whatever difference there is between what you sell it for and what you owe at any time.
What Happens During a Divorce?
What would happen if a couple chose to get a reverse mortgage and then one of the people moves out of the house because they are getting a divorce? How is the equity valued to determine the buyout of the spouse that’s not has moved out of the home?
If one of the parties moves out, as long as the other person is named and is on the loan, there will be no consequence to the person who remains in the house. They can still keep the reverse mortgage, and it will not suddenly become payable. It will go on as if both of the parties still lived there.
The house would then be valued the same way that you would value any other home. The fact that it has a reverse mortgage will not matter. Once you get the value of the home, you can then determine how much the other person should receive for a buyout of the property after they have left.
Often, when one person moves out in a divorce, the person who is keeping the home will want to refinance the property. Even on a reverse mortgage, this is possible. You can refinance it at any time.
Who Is a Good Candidate for a Reverse Mortgage?
A good candidate for a reverse mortgage would be someone who has equity in their home, who is over 62, and who is going to be staying in the home for the long term. Keep in mind that only one of the parties needs to be 62 to qualify for a reverse mortgage. The other person could be younger, and they will still have the same protection. However, because the other person is younger, it typically means that you will not get quite as much money in the reverse mortgage loan.
Does It Make Sense for Finances in a Divorce?
There are quite a few benefits to getting a reverse mortgage, and it could be a good solution for you. By eliminating the monthly mortgage payment, it can free up a lot of extra money, which could help to make it easier to pay for other things that can occur during a divorce, such as spousal maintenance, child support, etc.
Before you can get a reverse mortgage, you will need to undergo homebuyer counseling, as it is a government requirement. Counseling helps you to better understand how the reverse mortgage works. It also helps to keep seniors protected, as they will have deeper knowledge about the process, so unscrupulous lenders can’t take advantage of them.
This is a simple phone conversation with a counselor that will last about 45 minutes. The borrower gets to choose the counselor. They will talk about their situation, learn more about the pros and cons of a reverse mortgage, and will then determine whether it’s the right solution for their needs. Could a reverse mortgage be right for you?