Can You Lose Your House With a Reverse Mortgage?
In this article, we’ll answer the question, “can you lose your house with a reverse mortgage?” These loans are complicated and require research to determine if they are right for you. Here we’ll briefly go over the different types and show you some of the associated risks, including whether or not keeping your home may be an issue.
- What is a reverse mortgage?
- What’s the risk to my property?
- Different reverse mortgage types
- Benefits and drawbacks of a reverse mortgage
- How to keep from losing your home in a reverse mortgage
What is a Reverse Mortgage?
A reverse mortgage is a loan available for people 62 and older so that those borrowers can use the equity in their home to accomplish a range of financial goals. Some may use it to cover bills, renovate or repair the residence, or even use it to cover lifestyle costs. They may simply want to eliminate their mortgage payment, and these products make it possible to defer that expense until the home is sold.
Unlike other types of personal loans, the interest rates are more comparable to a mortgage which can make it more appealing for covering the same expenses.
What’s the Risk to My Property?
For those wondering “can you lose your house with a reverse mortgage?,” that largely depends on whether or not you can keep up with the costs of homeownership, like making sure taxes are paid. While some may assume these costs are covered under a reverse mortgage, the homeowner is still required to address them, whether through the proceeds of the loan or paying them separately.
Different Reverse Mortgage Types
Single-purpose - These are offered by various state and local government agencies, as well as non-profits. They are the least expensive option, but are not available everywhere. They can only be used for a purpose specified by the lender, such as for renovations, taxes, or home repairs, and are more limited in their advances than other options.
Proprietary - These are private loans and can offer larger advances if you own a home with a higher appraised value compared to what you owe. This can be a very flexible option, especially for those who own an expensive home. Loan amounts can be up to $4 or $5 million.
Home Equity Conversion Mortgages (HECMs) - These loans are insured by the Federal Housing Authority. HECMs give a lot of flexibility and work with a wide range of customers. They typically pay out more when interest rates are low, which is why they have been more desirable in recent years. They can be used for any reason and can pay out in a lump sum, monthly, through a line of credit, or by a combination of these.
For more information on reverse mortgages, click here. Next, we’ll go over the pros and cons to help you assess the risks and whether or not you can lose your home.
The terms and conditions of foreclosure vary based on the type of loan. Below, we’ll briefly outline the various options and go through the pros and cons of a reverse mortgage.
Benefits and Drawbacks of a Reverse Mortgage
|Lower costs than moving in some cases. Unless you plan to downsize considerably, a reverse mortgage may make more sense when you factor in moving expenses, stress, and lifestyle change.||Expenses - There are various charges associated with these products, which mirror those of a traditional mortgage.|
|Increased cash flow - Depending on your loan type, you can eliminate your mortgage, use it as a line of credit and anything in between.||Interest rates - They can be variable or fixed, but locked rates will pay out at a lesser amount.|
|Payout is non-taxable. Since this is a loan, proceeds are not counted as income.||Residency changes can affect the loan terms. For example, moving into a nursing facility may change your residency status for your primary property.|
|Heirs will not be responsible - Because these products fall into the category of "non-recourse" financing, the loan amount will not exceed the property value, no other assets can be seized, and relatives will not be pursued.||Penalties - Borrowers with a reverse mortgage may end up violating asset terms for SSI and Medicaid. So do your research to see if it will affect these benefits.|
|You still own your home - While most reverse mortgages are paid when the borrower sells or passes away, the homeowner has the ability to refinance or repay the loan balance prior to that.||Foreclosure is possible - While the purpose of a reverse mortgage is to lower expenses while you remain in your home, falling behind on taxes, HOA bills, insurance, etc. may open the door for a foreclosure.|
How to Keep From Losing Your Home in a Reverse Mortgage
The main concern for those considering these products is “can you lose your house with a reverse mortgage?” The answer is typically no. As long as you stay on top of bills related to the property, including taxes, HOA fees, homeowners insurance, etc., there will be no risk of foreclosure while you remain in the home.
Where this gets more complicated if you have to move into an assisted living facility or nursing home, or when you pass away. These terms vary and are addressed within each loan, so make sure you review all the details to determine what you’re comfortable with before you sign.
In addition, even though you’re able to keep your home, the benefit to your heirs will be minimized or even eliminated. They may simply get less for the home to reconcile the loan or may need to hand over the deed altogether depending on the situation.
If you’re still wondering, “can you lose your house with a reverse mortgage?,” consider the following frequently asked questions.
Q: I’m afraid someone will try to take advantage of my situation, what can I do to make sure it doesn’t happen?
A: Besides doing thorough research yourself, you may also want to consider working with an elder attorney to help you understand the ins and outs of the agreement before you sign, or help answer questions if you’re already locked into a loan.
Q: What happens when I can’t pay the bills for the home?
A: Typically, the lender will stop issuing payments. If the property taxes or insurance are not paid, you risk going into foreclosure.
Q: What happens if my spouse passes away or can no longer live in the home?
A: You’ll want to make sure that the loan is in both names to ensure that there are no unnecessary complications in the event of the death of one spouse. Note that if the loan is only in the name of the person who passes away or can no longer live in the home, the other spouse will still be responsible for the loan.
A reverse mortgage can be a good way to help cover costs while allowing you to live in your home. Whether you simply want to eliminate your mortgage payment, or have the means to leverage your home equity for lifestyle costs, the decision of how much to borrow will be unique to you. And the best part is that as long as you keep up with the usual maintenance costs, you almost certainly can’t lose your house while you live in it.