Reverse Mortgage Living Trust
My husband died with a reverse mortgage on our property. What are my options?
My husband died a month ago. He had a reverse mortgage with a balance now due of $140,000. The deed is in name of his revocable living trust, I am primary successor trustee, the house is valued at $180-190K. My question is since I would like to stay here and pay off the loan-what is my best option? We own a condo that is free and clear, worth about $200K but my son is living there for the cost of expenses ($750 mo). My savings and mutual fund portfolio is worth approx $450K. My income in retirement is $1297 mo from soc sec and $750 mo from my share of a rental in the UK inherited from my father. Another son is paying off a loan at $400 mo until 2013. I am almost 53. Thank you.
- Repay the reverse mortgage balance with a lump sum payment.
- Finance the reverse mortgage balance with a new mortgage.
- Use your savings and investments to repaid the balance.
A reverse mortgage is a loan that allows homeowners 62 years of age and older to use the equity in their homes to generate tax-free income, without having to sell the homes or take on a new mortgage payments. The lender generally makes monthly payments to the borrower, but a lump-sum or line-of-credit is also available. In reverse mortgage, the lender secures the loan amount by using the house as collateral.
In a reverse mortgage, the homeowner receives money from the lender and generally does not have to repay it for as long as the homeowner resides in the property. The loan must be repaid when the homeowner dies, sells the home, or no longer lives in the property as the principal residence. Reverse mortgages can help homeowners who are house-rich but cash-poor, and are an important resource seniors.
Bills.com has published several articles on reverse mortgages:
Before I discuss resolving the reverse mortgage, let me take a moment to review the trust. The property with the reverse mortgage is held in a trust. Allow me to make an editorial comment here and commend your husband for placing the house in a trust. This indicates he consulted with an estate planning attorney in your state. Because your husband placed the property in a trust you will avoid many of the taxes and expenses related to the probate process -- at least for this property. Your attorney will be able to answer your questions about transferring the title into your name, and the benefits of setting up your own trust.
You have other property, which you do not mention as being in a trust, and other financial assets that you may wish to discuss with this attorney to ensure that your own estate planning issues are covered. The issues surrounding the repayment of the reverse mortgage are different than issues around the title of your home.
Because your husband died and the title of the property was transferred to you in the trust, you took the title subject to the reverse mortgage. The mortgage must now be repaid. You may repay the reverse mortgage in full with a lump-sum payment or finance the debt with a new mortgage. You state that you want to stay in the home and repay the loan. You may wish to speak with the bank who holds the note for the reverse mortgage and see if you can secure a new loan based on your assets and income. Most reverse mortgages have a one year repayment plan, but each contract is different. You need to review the contract signed by your husband, and a contracts attorney would be able to discern the fine print regarding repayment or any other clauses that affect repayment after death.
You do have equity (some in equity in your current home, paid in full condo and portfolio assets). If the mortgage interest rate is low and you would earn more in your portfolio, then a lump-sum payment may not be the best method because you could earn more than what you are paying. If you are unable to secure a new mortgage, then speak with your financial advisor managing your portfolio as to the best method for paying off the reverse mortgage. If some of those funds are in an IRA or 401(k), you may be able to borrow against those funds and repay those in monthly installments.
When considering you for a new mortgage, the bank will look at your income, credit history, and your debt-to-income ratio. The bank will consider the Social Security payment you are receiving is a widow's benefit as a stable income. The bank will also include the income from your UK rental and US rental if you have been including them as rental income on your IRS form Schedule E.
You also have a sizable asset portfolio can can act as a cushion. Based on the numbers you provided, your income is about $3,200 per month without tapping into your portfolio funds. Assuming you have no other debt and have a positive credit history and credit score that will allow you to find a mortgage lender, we can make some rough estimates of your mortgage payments. If you borrow $140,000 to repay the reverse mortgage at a rate of 5.5% for 30 years, your payment will be about $800 per month. Assuming a $3,200 monthly income and no other debt, your debt-to-income ratio would be 25%, a very manageable amount of debt.
You may also wish to sell the condo if the real estate market is healthy in your area, and repay the reverse mortgage from those proceeds.
I hope this information helps you Find. Learn & Save.