According to opens in a new windowNBC News, the percentage of people aged 62 to 64 applying for reverse mortgages has increased 15 percent since 1999. Many seniors have trouble paying bills or living off their savings, causing this increase. But can you outlive a reverse mortgage? This is an important question, especially if you are considering getting one. We will also provide some tips on how to make sure that you don’t run out of money with your reverse mortgage loan!
No, you can’t outlive your reverse mortgage as long as you or your spouse live in the house. The loan doesn’t have to be paid back until the last owner moves out for good or dies.
Key Takeaways
- If you or your spouse live in the home, you can’t outlive your reverse mortgage. The loan isn’t due until the last owner leaves or dies.
- There are three main types of reverse mortgage plans: tenure, modified tenure, and lump sum.
- Monthly mortgage payments on your reverse mortgage are optional. One of the main benefits of a reverse mortgage is that it does not require monthly mortgage payments.
Can You Run Out of Money with a Reverse Mortgage?
One of the biggest concerns people have about reverse mortgages is that they will run out of money. But if you have a modified term plan, this shouldn’t worry you.
With a modified term plan, you will only get a fixed monthly payment for a set amount of time, but you can use the line of credit until it’s gone. With this plan, you won’t run out of money if you carefully use your line of credit.
Single Lump Sum Reverse Mortgage
If you’re concerned about running out of money, the lump sum option might be a good choice. When you close on your reverse mortgage, you will receive a lump sum of cash. You may use this amount as you choose, and it can be an excellent method to ensure that your reverse mortgage isn’t paid off before you die.
The opens in a new windowConsumer Financial Protection Bureau (CFPB) released a study to Congress in 2012 suggesting that the lump-sum alternative might be hazardous, especially for younger borrowers with longer lives who don’t have other ways to save for retirement. People who retire at a young age may deplete their equity before they want to due to the way loans are structured. So, you need to keep in mind to do your own research before you decide to sign on on a dotted line.
Modified Term Reverse Mortgage Payment Plan
With a modified-term reverse mortgage, you will receive monthly payments for as long as you live in your home. You can also choose to receive these payments for a predetermined number of years. But it is also important to remember that If you choose to receive payments for a predetermined number of years, the credit will be available to you until the end of those years.
How to Avoid Running Out of Reverse Mortgage Proceeds
The Consumer Financial Protection Bureau (CFPB) warns that younger retirees with longer life expectancies are more likely to use up all of their home equity if they get a reverse mortgage. This won’t be a problem if they can “age in place,” or stay in their homes for the rest of their lives, but it will be if they want to or need to move in the future.
There are a few things you can do to make sure that you don’t run out of money with your reverse mortgage. First, as we mentioned above, you can choose a modified term plan. With a modified term plan, you’ll only get payments every month for a set amount of time, but the line of credit will stay open until it’s used up. With this plan, you won’t run out of money if you carefully use your line of credit.
You can choose the lump sum option
With the lump sum option, you will receive a lump sum of cash when you close on your reverse mortgage. You can use this lump sum of cash however you want, and it can be a great way to make sure that you don’t outlive your reverse mortgage.
You can make wise choices about how you use your money.
It’s important to remember that a reverse mortgage is a loan, and it needs to be repaid with interest. So, if you’re using your reverse mortgage proceeds to pay off debt or make investments, be sure to do your research and make smart choices.
Talk to a HUD Approved Counselor
If you’re considering a reverse mortgage, be sure to talk to a HUD-approved counselor. They can help you understand the pros and cons of a reverse mortgage, and they can help you make sure that it’s the right choice for you.
Modified Tenure Reverse Mortgage Plan
The modified tenure reverse mortgage payment plan gives you a line of credit and fixed monthly payments for life. It gives you a smaller line of credit and a lower monthly payment than a straight tenure plan and a straight line of credit plan.
With the modified tenure reverse mortgage payment plan, you can choose to get monthly payments for as long as you live in your home and you can also choose to get these payments for a set amount of time. Remember, If you choose to get payments for a certain number of years, you can use the line of credit until those years are up.
Reverse Mortgage Payment Plan
The tenure reverse mortgage payment plan provides fixed monthly payments for as long as you live in your home. With this plan, you will receive a larger monthly payment than with the modified tenure plan. However, you will not have a line of credit available to you.
Changing Your Current Plan
If you already have a reverse mortgage and think you might run out of money, talk to your reverse mortgage consultant about changing how you make payments. You can change your payment plan as long as you didn’t choose a fixed-rate, lump-sum loan and as long as you can stay under your loan’s principal limit. Refinancing is a lot harder than changing your payment plan, and you only have to pay a small fee for the paperwork.
What happens if I outlive the proceeds from my reverse mortgage?
If you outlive the proceeds from your reverse mortgage, you or your heirs will have to repay the loan balance. If your home is worth more than the amount you owe on the loan, your heirs can sell the home and keep the difference. But, if your home is worth less than what you owe, your heirs can either sell the home and use the proceeds to repay the loan, or they can sign a deed in lieu of foreclosure.
Additionally, when the last borrower dies, the balance of the loan has to be paid back—most heirs will sell the house to pay back the loan.
If you have a reverse mortgage and are worried that your heirs will have to sell your home, you can buy a life insurance policy and name your heirs as the beneficiaries. So, if you die before your reverse mortgage pays off, your heirs will have enough money to pay off the loan.
How do I know which payment option is right for me?
There are three main types of reverse mortgage plans: tenure, modified tenure, and lump sum. With a tenure reverse mortgage, you will receive fixed monthly payments for as long as you live in your home. With a modified tenure reverse mortgage, you will receive both fixed monthly payments and a line of credit. And with a lump sum reverse mortgage, you will receive a lump sum of cash when you close on your loan.
The best way to figure out which payment option is right for you is to talk to a reverse mortgage professional. They can help you understand your options and make the best decision for your unique situation.
What are some reverse mortgage alternatives?
Sell And Downsize Your Home
One alternative to a reverse mortgage is to sell your home and downsize. This option can be especially beneficial if you have a lot of equity in your home and don’t want to take on more debt.
Take Out A Home Equity Line Of Credit (HELOC)
Another alternative to a reverse mortgage is to take out a opens in a new windowhome equity line of credit (HELOC). With a HELOC, you can borrow against the equity in your home and only pay interest on the amount you borrow.
This option can be a good choice if you need money for a one-time expense and want to avoid taking on more debt.
Refinance Your Mortgage
A third alternative to a reverse mortgage is to refinance your mortgage. If you have equity in your home, you may be able to get a lower interest rate and monthly payment.
This option can be a good choice if you’re struggling to make your current mortgage payments.
Apply For A Home Equity Loan
A fourth alternative to a reverse mortgage is to apply for a home equity conversion mortgage. With a home equity loan, you can borrow against the equity in your home and use the money for anything you want.
This option can be a good choice if you have a specific purpose for the money and want to avoid taking on more debt.
Rent Your Space To Others
A final alternative to a reverse mortgage is to rent your space to others. If you have a spare room or an unused apartment, you can rent it out and use the money to help cover your living expenses.
This option can be a good choice if you need extra income and don’t mind having roommates or tenants.
Can I make payments on my reverse mortgage?
Monthly mortgage payments on your reverse mortgage are optional. One of the main benefits of a reverse mortgage is that it does not require monthly mortgage payments. Instead, the loan is repaid when the borrower sells or permanently leaves the property, passes away, or fails to comply with the loan terms. These terms include maintaining the property in good condition and paying the property taxes and homeowners insurance. As long as these terms are met, the borrower does not have to worry about making monthly payments on the loan.
The NonBorrowing Spouse’s Dilemma
Since they were first made available in 1961, reverse mortgages have been improved and made stronger. This has made them an even better financial option for older Americans who want to stay in the home they love while getting extra money for retirement. One big change is that non-borrowing spouses now have more financial protection and security.
In the past, if the borrowing spouse died, the non-borrowing spouse would often have to move out of the home. But now, thanks to new opens in a new windowlawsopens pdf file that went into effect in 2015, non-borrowing spouses can stay in the home as long as they continue to make all of the required property tax and insurance payments.
opens in a new windowNon-borrowing spousesopens pdf file now have greater protections than ever before. Since August 4, 2014, this status has allowed the widow or widower to continue in their beloved house. Borrower(s) must, of course, continue to pay property taxes and homeowner’s insurance, upkeep the home, and furthermore adhere to the loan agreements.
The non-borrowing partner categorization has also enabled many older married couples to obtain a reverse mortgage to supplement their income in retirement. However, keep in mind that increased rights and safeguards come with increased duties to follow the conditions and restrictions of the reverse mortgage loan.
Can you outlive a reverse mortgage FAQs
How long can you keep a reverse mortgage
You can keep a reverse mortgage as long as you live in your home and continue to make all required property tax and insurance payments. If you move out of your home, sell it, or die, the loan must be repaid.
What happens when reverse mortgage equity runs out
There is no more money available to acquire once you reach the maximum limit, but you may still live in the property for the duration of your life without being required to make a loan payment. You must remain responsible for paying your property taxes and retain your homeowner’s insurance, as well as keep the house in decent shape. However, you are not required to leave simply because you have hit your borrowing limit.
How to Avoid Running Out of Reverse Mortgage Proceeds
With a modified term plan, you’ll only get payments every month for a set amount of time, but the line of credit will stay open until it’s used up. With this plan, you won’t run out of funds if you cautiously use your line of credit.
So, If you’re looking for a modern mortgage solution that offers plenty of benefits, a reverse mortgage is the way to go. Unlike a traditional mortgage, (also called a forward mortgage) a reverse mortgage doesn’t require monthly payments. Instead, the loan is repaid when the borrower dies, sells the house, or moves out of the house. Keep in mind, that you have to maintain the home according to the FHA requirements (Federal Housing Administration) to keep the home and pay property taxes.
The flexible repayment option is just one of the many advantages of a reverse mortgage. Other benefits include the ability to stay in your home and use it as an investment property, as well as the option to receive a lump sum of cash or regular payments. So if you’re looking for a mortgage that better meets your needs, a reverse mortgage is definitely worth considering.
Conclusion
A reverse mortgage can be a great way to access extra money in retirement, but it’s important to understand all of the risks and benefits before signing up. My team is here to help you make the best decision for your unique situation. I offer free consultations so that you can ask any questions you have and get started on the process. Give me a call today or schedule an appointment online to get started!
