Reverse mortgages are becoming integrated as a staple in the long term financial plans. Used in a comprehensive plan, reverse mortgages make retirement funds last longer. Unfortunately, there is still a lot of confusion for those couples with notable age gaps. Generally, reverse mortgages take place when all borrowers are over 62.
It is possible for a couple with one spouse who is under 62 years of age to get a reverse mortgage loan? Is it a smart financial move in this scenario?
Yes You Can! Make an informed decision.
The key is that all borrowers must be 62 years old, or older at the time of taking out the loan. The younger spouse must not be on title at the time of the loan closing.
Spouses under age 62 should have questions about this scenario. The key is to study your situation and see if entering into a reverse mortgage makes financial sense. HUD has recently made policy changes to protect younger spouses.
If the other spouse dies before the younger spouse, the younger spouse may inherit the home. The reverse mortgage repayment date defers for the lifetime of the younger spouse. This deferral period must be applied for. There are specific aspects of a reverse mortgage when there is a younger spouse (under age 62). Let’s take a closer look.
· The couple need to be married at the time of closing the reverse mortgage. (Common-law spouses are recognized as legal in the state where the borrower lives. This applies to same sex couples if recognized as legal in their state.)
· The younger spouse must not be on title at the time of closing.
· The reverse mortgage proceeds are calculated on the younger spouse.
· The non-borrowing spouse may not receive any remaining loan proceeds after the death of the other spouse.
· The non-borrowing spouse must establish legal ownership of their home within 90 days of the death of their spouse to qualify for the repayment deferral.
· The non-borrowing spouse must maintain their home as their primary residence.
· The non-borrowing spouse must pay property taxes, insurance, association dues and maintain their home.
· The reverse mortgage debt is only attached to the house. It is not a personal debt of the surviving spouse.
· If a reverse mortgage borrower marries after a reverse mortgage is in place, the borrower will need to refinance to add the new spouse on title or to qualify for a repayment deferral.
Providing they do the above, the surviving younger spouse may be able to continue to live in the home for their lifetime. The loan will continue to gain interest. They will not receive any more loan proceeds money. But the loan repayment is deferred for their lifetime. The exception is if there were repair funds in escrow. When those repairs are completed during this ‘deferral period’. Those funds are released.
When Does it Makes Sense to Get a Reverse Mortgage with a Younger Spouse?
The above aspects means that this plan may not be for everyone. So who does it make sense for, and when?
This strategy may make sense for couples desiring being mortgage payment free.
Proceeds may deliver a lump sum of money, regular monthly payments, or act as a flexible credit line.
It’s important to create a lifetime budget. Be sure to take into account any income changes when one spouse dies before the other. Life insurance, cash flow businesses and having other assets may be helpful.
The surviving spouse may not want to stay in the home. The property can be sold if they would like to downsize or go live with family.
Cash taken out earlier can be used to get a smaller home or condo. The guidelines require the borrower and non-borrowing spouse participate in HUD approved 3rd party counseling as a safety measure in protecting consumers. This occurs before any contract is signed.
In conclusion; it is possible for couples to take a reverse mortgage, even if one spouse is less than 62. It is important to look at the big picture, and whether this is the optimal strategy for your situation. For many it will be the best move.
It is vital for homeowners to understand the loan agreement in its entirety. Know the rules now, make your plan.