A reverse mortgage can help you in retirement, but tell your family
Like millions of seniors, Ron and Sally Anson are equity rich but limited on monthly income.
Since they're 62 or older, they qualify for a reverse mortgage loan.
With a reverse mortgage, you can borrow against much of the equity in your home. Instead of making monthly payments, the lender sends you monthly payments and charges you fees and interest. The lender gets their money back after you die, relocate, or sell your home.
Ron, now 80, decided a reverse mortgage would be a smarter financial strategy than taking money out of retirement savings for ongoing living expenses. The couple has owned their home for more than 35 years and have hundreds of thousands in equity.
"I finally went in to the computer and started looking," said Ron. "And, boy! There's people out there that send you stuff immediately when they see you getting on the computer and typing in reverse mortgages!"
Anson said he also started getting unsolicited calls immediately. All from lenders offering to send information about their reverse mortgage products. Different lenders charge different fees, and interest rates. And there are different types of reverse mortgage options.
Fortunately, for the Ansons, federal regulations require all perspective mortgage loan applicants to go through special counseling with a certified housing counselor. They must include a certificate that verifies they've undergoing counseling when they submit their loan application.
The counseling informed them of how the loans work and how much they could borrow, as well as their responsibilities.
"You must keep up your home," explained Linda Taylor, Director of Housing at the Seattle Metropolitan Urban League were the Anson's received counseling. "You must pay your taxes, you must pay your insurance just as though you had a forward mortgage. It's still your home."
Taylor said a common mistake many seniors make with reverse mortgages, is not telling their families about getting the loan. That's critical.
"Just so all of your family knows that you have one. If you pass away. If you're not able to talk to them about it, if you forget!" Taylor emphasized.
Taylor urges anyone whose parents qualify for a reverse mortgage to make it a point to know if and when their parents take out a loan. If necessary, ask.
"Because this is a mortgage you cannot inherit. That's the thing," Taylor said.
"You can inherit the home but not the mortgage. So you have to do something. Prepare yourself to sell the home or prepare yourself to get a mortgage to take it over if you plan to stay there," Taylor added.
Ron and Sally Anson took out a reverse mortgage and talked to their kids to avoid surprises.
"Both of our kids, when we mentioned it, they said well, what's that all about? And we've told them all what the implications are," said Ron.
Now, with extra monthly income, the couple no longer worries about depleting their retirement savings.
And their children understand they'll either have to sell the home, or pay off reverse mortgage when the last parent leaves the house.