My mother has a reverse mortgage. I am 59, and my husband and I are moving into my mother's house to take care of her. My brother and sister and I are currently in mom's will to inherit the house.
With Mom's and my siblings' concurrence, my husband and I will begin paying off the reverse mortgage, and Mom wants to put us on the deed of the house as co-owners. Upon her death we will buy out my siblings and remain in the house and continue to pay off the reverse mortgage.
Will we have to get a new mortgage to pay off the reverse mortgage if mom dies before I am 62? It is my understanding that as a co-owner under the required age of 62 I wouldn't be able to keep the reverse mortgage.
Ilyce and Samuel respond
Reverse mortgages are loan products that allow homeowners over the age of 62 to obtain a loan against the equity they have built up in their homes. If homeowners are married, at least one spouse must be at least 62 years of age to qualify for the reverse mortgage.
When you take out a reverse mortgage, you either get a lump sum or a credit card to use against the amount of the reverse mortgage. You can also set up your reverse mortgage to provide a monthly stream of income to live on or use in other ways during retirement.
A reverse mortgage does not generally require any payments made by the homeowner to the lender. The lender expects repayment at the time the home ceases to be used as the primary residence for the senior citizen (if, for example, the owner moves into a retirement home or assisted living) or dies.
One of the best parts of a reverse mortgage is that the amount owed to the lender can never exceed what the home is worth. So, even if the amount owed to the lender balloons to 150 percent of what was borrowed, the lender is limited to whatever the home fetches at sale and cannot go after the estate or the heirs for the difference.
But safeguards have been put into place to prevent homeowners from doing an end run around the lender.
For example, imagine a scenario where a very elderly homeowner takes out a reverse mortgage, then places her senior citizen child in title with her. When the mother dies, the child would become the owner of the home. If the child then waited until his or her child is 62 years old, and added that person to the title of the home, and so on, it's easy to imagine how the lender would never be repaid.
Therefore, a reverse mortgage may generally be taken out by a husband and wife who are senior citizens and while either of them live in their home as a primary residence, the loan will stay in place. The loan must be repaid when the home is sold, ceases to be a primary residence, or the owners pass away.
If you and your siblings wish to inherit the home, you will have to find a way to pay off the lender. Your letter raises an interesting issue, since most reverse mortgage lenders are not set up to take multiple or even monthly payments for these loans. Typically, a single check is handed over at a closing and the account is closed.
Have you spoken to your mother's reverse mortgage lender about this plan? Do you have written guidance from the lender on how and where to make these payments? Do you know how much you can pay off?
Instead of waiting for your mother to die, consider "buying" the home from her now before any more interest accrues on the reverse mortgage loan.
Mortgage interest rates are at record lows right now. Thirty-year mortgages can be had for just over 4 percent, and a 15-year loan might be had for less than 3.5 percent (as of the middle of September).
If you take out a loan now at 4 percent for the purchase price of the home, and pay off the reverse mortgage, which is accruing interest at 7 or maybe even 8 percent, you'll be way ahead of the game.
You can hire an agent to establish a value for the property and determine with your siblings if the market price is acceptable to them. If it is, you can take out a loan, pay off the reverse mortgage, and either make payments to your siblings now or later, when your mother dies and you inherit the rest of her estate.
Meanwhile, you will own the property and lock in a mortgage at a historic low.
To find out more, and to create the documents needed to make this happen, including changing your mother's will to reflect this move, please consult with a real estate or estate attorney.
Ilyce R. Glink's latest book is "Buy, Close, Move In!" Samuel J. Tamkin is a Chicago-based real estate attorney. Distributed by Tribune Media Services
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