When the Homeowners Are Different Ages
You have to be at least 62 years old to qualify for a reverse mortgage. If you are past that age and your spouse is younger, you may be wondering what your options are. Here are five facts you may want to consider.
1. Reverse Mortgage Payments Can Be Larger When You're Older
When setting up a reverse mortgage, the lender takes into account the value of the home, its equity and the age of the borrower(s). The older the borrower is, the larger the monthly payments from the reverse mortgage will be. Because of this, some borrowers prefer to remove the younger borrower from the deed and just take out the loan in the name of the older borrower.
This decision can pay dividends in the short term, but it's a risky move for the long term.
2. Both Borrowers Should Always Be on the Reverse Mortgage
When both borrowers are on a reverse mortgage, the home is completely safe until the last borrower moves out. At that point, whether the borrower has died, is moving into a nursing home or just leaving for another reason, the home gets sold. Then, the proceeds from the sale cover any remaining amount due on the mortgage, and the difference goes to the borrower (if still alive) or to the heirs (if the borrower has died).
In contrast, imagine that only one homeowner is on the reverse mortgage and he or she dies. At this point, the other homeowner has just 90 days to repay the reverse mortgage and prove that he or she has a right to the house. It can be difficult if not impossible to come up with the funds, and as a result, this homeowner may end up losing the home. That's why it's critical to keep both homeowners on the deed and put both of them on the loan.
3. There Are Alternatives to Reverse Mortgages
If you really need extra money, but both spouses haven't reached age 62 yet, you may want to explore other options. For example, you may want to consider a home equity loan or line of credit. This is a loan that is backed by the equity in your home.
Depending on your financial needs, you could take out that type of loan for the next five to 10 years. Then, you could repay it and pursue a reverse mortgage when both of you are 62. However, it's critical to understand that there are key differences between these two products.
4. You May Want to Coordinate Social Security Benefits and Reverse Mortgage Payments
Alternatively, if just one of you is 62, you may decide to take out your Social Security benefits early. It's important to note that you receive a lower amount if you start claiming on your 62nd birthday. However, you receive higher payments if you wait until you are 70.
To that end, one spouse may want to take the reduced payments at their 62nd birthday. Then, when both of you turn 62, you may want to explore reverse mortgages, and finally, you may want to wait to claim the second partner's Social Security benefits until age 70. At that point, you can enjoy the delayed retirement credits.
This is just an example, and you should always talk with a financial adviser to ensure you choose the right approach for your situation.
5. You Don't Have to Be Married to Get a Reverse Mortgage Together
You don't have to be married to get a reverse mortgage. If you are living in your home with an adult child, a friend, a romantic partner or any other co-owner, you can also apply these facts in those situations.Want to figure out what option is the best in your situation? Then, contact Retirement Funding Solutions today. Whether both owners are over the age of 62 or not, we can help you figure out the best route forward for your retirement.