What you might not have known about reverse mortgages

By Korey Welch, Owner of Boom Realty
and Senior Mortgage Broker, Loan Factory

A reverse mortgage can offer several advantages, particularly for older homeowners. Here are some key benefits:

  1. Supplemental income in retirement
    A reverse mortgage allows homeowners, typically aged 62 or older, to tap into their home’s equity without selling the home. This can provide a steady stream of income or a lump sum, which can be especially helpful for retirees who need extra money to cover living expenses, medical costs, or other needs.
  2. No monthly mortgage payments
    Unlike a traditional mortgage, with a reverse mortgage, the homeowner is not required to make monthly payments on the loan. The loan is repaid when the homeowner sells the home, moves out permanently, or passes away, making it less of a financial burden during retirement.
  3. Retain ownership of the home
    The homeowner retains the title and ownership of the home. As long as the borrower continues to meet the loan obligations (such as maintaining the home, paying property taxes, and keeping up with insurance), they can stay in their home for the rest of their life.
  4. Non-recourse loan
    A reverse mortgage is considered a non-recourse loan, which means the borrower (or their heirs) will never owe more than the home’s value when the loan is repaid. If the loan balance exceeds the home’s value when it is sold, the lender cannot come after the homeowner or their estate for the difference.
  5. Flexible payment options
    Reverse mortgage borrowers can choose from several payment options, including:
  • Lump sum: A single large payment.
  • Monthly payments: Regular income-like disbursements.
  • Line of credit: Borrowers can draw on the credit line as needed.
    This flexibility allows retirees to tailor the reverse mortgage to fit their financial needs.
  1. Tax-free proceeds
    The money received from a reverse mortgage is generally tax-free because it is considered a loan advance rather than income.
  2. No impact on Social Security or Medicare
    Funds from a reverse mortgage typically do not affect eligibility for Social Security or Medicare benefits. However, it may affect Medicaid eligibility, depending on how the money is spent.
  3. Housing stability
    For seniors who want to age in place, a reverse mortgage can provide financial security without requiring them to move, downsize, or sell their home.
  4. Protection against falling home values
    If home values decrease, borrowers are protected, as they will never owe more than the home is worth when it is sold. The Federal Housing Administration (FHA) typically insures most reverse mortgages, providing this guarantee.
    What you also need to watch out for on reverse mortgages is the closing costs. Be very cautious of mortgage professionals charging points and origination fees on these loans. These loans are very profitable for mortgage professionals, depending on which type of reverse mortgage you are doing, paying these types of fees shouldn’t be necessary.
    Reverse mortgages can be a beneficial financial tool for the right homeowners, but they are complex and may not suit everyone. Careful consideration and consultation with a financial advisor are recommended.

Korey Welch, owner of Boom Realty and Senior Mortgage Broker (NMLS: 14991) with Loan Factory (NMLS: 320841), is a licensed mortgage broker/real estate broker based in Rockland. For more than two decades, Korey has been helping seniors determine the best fit. For a complimentary consultation, contact him at korey@koreywelch.com, 781-367-3351.