Reverse mortgage

Canoe paddlers at sunset.  Photo by Ted Trimmer.

With the economy tanking, I called Rosanne at a local bank regarding a reverse mortgage.  For those of you who don’t know, a reverse mortgage would pay off our existing $240,000 mortgage so we would not have to make monthly payments as long as we live in the home.  Once we die, our heirs would have to pay off the reverse mortgage to own the house. 

The criterion is that David and I have to be 62 years old.  Since I am 63 and David is 59, we would have to transfer title to me as life tenant and David as remainderman.  If anything happened to the primary borrower, the remainderman would automatically get the title.  Or we could set up a Revocable Trust and name David as the beneficiary.  

This is where we stand right now:

*Without a reverse mortgage, it will take us just 9 years to pay off the existing $240,000 mortgage.  We would then own the house free and clear.

*If we got a reverse mortgage now, we would accrue additional debt because of interest and closing costs.

*On the other hand, a reverse mortgage would help us if David lost his job and we could not make our mortgage payments.

Rosanne told me that, assuming a minimum home value of $600,000, we could pay off our $240,000 balance and also qualify for a credit line of about $110,000, which we could draw from as needed.

Sounds tempting. 

However, Rosanne advised us to wait until David is 62 years old so that we both would be covered under the reverse mortgage.  If I died before he turned 62, he would have to pay off the balance within a year of my death.  Pretty scary!

So that’s what we will do.  We will reassess our situation when David turns 62.  In all likelihood, we will apply for a reverse mortgage only if David is unemployed and we cannot make the mortgage payments.