You see ads for them all the time. They are often promoted by celebrities. They are reverse mortgages, and there is a lot of debate over whether they are legitimate, or whether they take advantage of seniors. The truth is that there are arguments on both sides, and that anybody getting a reverse mortgage may want to consult with a New Jersey real estate attorney, to see if the option is right for them.
Getting Paid From a Reverse Mortgages
Unlike a traditional loan, where you pay the lender, in a reverse mortgage you get paid. How does that work? If you are of a certain age—usually, older than 62—you may have lived in your home for a while. During that time, you may have been making payments, and by the time you reach your 60s, your home may have a lot of equity, or may even be paid off completely.
If you were to sell your home, you would get that equity in cash because the buyer’s money would not need to pay off a mortgage (or a large one). You would be able to pocket (most of) the money the buyer uses to buy your home. A reverse mortgage is like an advance on that money. The bank is using the equity in your home to pay you. Every time the bank pays you, the equity in your home is reduced.
This is the first negative of a reverse mortgage, although it may not be a negative. It means that whoever inherits the home may inherit a home with little or no equity or value. That means that reverse mortgages are not good for people who intend to leave the family home to children as an inheritance or investment.
However, if this is not the case, then it may not matter that the property has no equity when you pass away. In fact, many people would rather enjoy the money and lifestyle of a reverse mortgage now, rather than leaving a home with a lot of equity after they pass.
Leaving the Property to Family Members
Another negative is that in most cases, the bank will take the property after the owner dies. The simple act of passing away is considered a “default” under most reverse mortgages. Nobody will owe the bank money, but it does mean that if you are looking to leave the family home for children or relatives to live in, a reverse mortgage may not work for you.
Reverse mortgages also require that the owner keep current on non-mortgage payment financial requirements of the home. Things like taxes, insurance, or homeowner’s association dues must be kept current or the property could be lost. This is not necessarily a negative, so long as you understand that you may not be completely living for free, and can lose the house if these additional regular expenses are not kept current.
Questions about any type of mortgage associated with the purchase or refinance of a home? Contact our real estate attorneys at The Law Office of Agnes Rybar LLC to help you with any kind of transaction involving your property.