Dear Jan,

We are senior citizens and thinking about selling our current house and buying a smaller home with less yard space.  I talked to my bank and they suggested a reverse mortgage.

Do you know anything about these loans?

CF

Dear CF,

Great timing, I am actually working on one of these loans right now.

A reverse mortgage is a loan for those 62 and older that uses a portion of the home’s equity as collateral (the down payment). They have no house payment but the principal and interest keep accruing.

The loan generally does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has approximately 6 months to repay the balance of the reverse mortgage or sell the home to pay off the balance. All remaining equity is inherited by the estate.

One positive aspect of a reverse mortgage is the estate is not personally liable if the home sells for less than the balance of the reverse mortgage. So if the market goes down and the mortgage plus interest now equal a greater value, you or your estate does not have to pay off the difference. Hard to believe, isn’t it?

These are popular loans amongst seniors. The Federal Housing Authority has stepped in and created strict guidelines that must be followed in the reverse mortgage industry. So seniors can be assured that someone is looking out for them. I think as we Baby Boomers move into that senior age there will be lots of these loans being used.  If you need the name of a trusting lender who knows these loans, contact a Real Estate Agent and ask for a reference.

Let me know what you decide to do,

Jan

Jan Zufelt is a broker with John L Scott Real Estate in Kingston.