Reverse Mortgage for One Spouse

My husband will turn 62 next year. Would a reverse mortgage be a good choice for him?

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Bill's Answer: Answered by Daniel Cohen

Because your question left out many variables that I need to properly answer you, I will address what I think you are asking and then list some questions for you.

All borrowers on a reverse mortgage need to be at least 62. If one person on the title is under 62, a reverse mortgage cannot be obtained.

It is possible to have the younger party quit claim his or her interest in the property to the older spouse, but that option carries some risk. Please read what I have written about reverse mortgages with one spouse under 62.

Reverse Mortgage Costs

Closing costs on a reverse mortgage vary by lender and can be high. Costs include a loan origination fee, appraisal, up-front mortgage insurance premiums, and service fees. Shop around for the best reverse mortgage. Some lenders have lowered costs on loans available through the Federal Housing Administration's (FHA) Home Equity Conversion Mortgage (HECM).

As I write this in September 2010, FHA is discussing offering a new reverse mortgage product called a "saver loan." The costs will be significantly lower on a saver loan compared to a standard reverse mortgage, but the amount that can be borrowed will likely have a loan limit that is at least 10% less.

Good Credit and Strong Income Not Required

A plus of a reverse mortgage is that a borrower's credit and income are not factors, as it is the equity stake in the home and the age of the borrower that are the primary factors. The loan size is determined by the age of the youngest borrower, the appraised value of the home, and the interest rate of the loan. A current appraisal of your home's value will definitely be required. The older you are, the lower the interest rate, and the more your home is worth, the larger the amount that can be borrowed.

Negatives to Consider

Aside from high potential costs for a reverse mortgage, a disadvantage is that the equity in the home can be used faster than a borrower realized; interest and fees add up. It can seem wonderful to have a large cash disbursement in hand, with no monthly payments required, but do not be tempted by the cash without thinking things through. People are living longer than in the past. (How is your health?) Anyone considering a reverse mortgage should be cautious, because once the reverse loan funds are spent, a person can find himself out of income, without resources, and at an age when earning income can be very problematic. This is especially the case for someone as young as 62. I generally recommend a reverse mortgage for someone older.

Although a reverse mortgage may be a person's best choice, it is my opinion that all other options should be considered before a reverse mortgage.

Here are just a few items to consider:

  1. Downsizing. Is your best choice to remain in your current home? Does it makes sense to consider moving to another home or even a different area where the cost of living may be much lower? Perhaps selling your home and renting could be a wise choice? Also, the older you are, the more reasonable it is to consider if and when an assisted living environment would be beneficial.
  2. Refinancing. Would it be better to borrow from the equity in your current home in a standard refinance mortgage?
  3. Alternative resources. Do you have any other assets that you can sell or cash in, such as other property or a life insurance policy?
  4. Renting out a room in your home. Having a renter living with you, if you have the space and can find a proper tenant, can greatly reduce your monthly costs.

I am not clear what you mean when you say your husband wants to purchase the home from you. Are you planning on separating or divorcing or are you simply trying to figure out how best to extract some equity from the house without his taking out a standard loan?

Do you currently own your home outright? Does your husband have enough money to buy the house from you, using his savings? If so, you could consider selling him the home directly, financing the home yourself.

I am also not clear what information you want about Fifth Third Bank.

Bills.com has written extensively about reverse mortgages. See the following Bills.com resources to learn more: Reverse Mortgage & Inheritance, Reverse Mortgage and Medicaid, Is a Reverse Mortgage a Good Choice?, Reverse Mortgage Living Trust, Reverse Mortgage Benefits, Reverse Mortgage Refinance,and the Bills.com reverse mortgage information page.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

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