Reverse Mortgages Offer Financial Options for Seniors Who Wish To Continue Living At Home

If you've been wondering what exactly a reverse mortgage is, how it differs from a home equity loan, and whether or not it could be a good fit for you or your loved ones, read on for some great information from our friend Ray Antonelli, a local expert who has been helping to educate people on the subject of reverse mortgages since 2005.

What Is a Reverse Mortgage?

Many have heard the term "reverse mortgage," but most don't really understand how it works or how it is different from the more commonly used home equity loan option. "It is different from a home equity loan," Ray Antonelli shared. "That's a common misconception. A home equity loan basically is a loan that you typically qualify for just like any other loan. So, that means you have to have good credit and you have to make payments on that loan, and you have to have good income as well to support those payments... and you have to prove all of this to the lender before a home equity loan can be originated."

"A reverse mortgage is a completely different animal," he went on, "because there are never any payments on a reverse mortgage on the part of the senior, and only seniors can qualify for a reverse mortgage. So, they have to be 62 years old or older, they have to be on title on the home--they have to own it in other words, they just can't be renting it--and in addition to that, they have to have paid their mortgage balance down to at least 50% or less of what the appraised value of the property is. So, that's the primary difference between a reverse mortgage and any other type of mortgage that you have on a property, whether its a first mortgage, a second mortgage, or a home equity line of credit or what have you. There [aren't] any payments. The credit on behalf of the borrower doesn't have to be anything special because there's no credit qualifying[.]"

No Payments? How Does That Work?

Sounds almost too good to be true, right? The beauty of it is, though, according to Antonelli, that it is genuinely as simple as it sounds. "Think of a reverse mortgage as a CD, a certificate of deposit," said Ray. "When someone goes to a bank or an insurance company and takes out a certificate of deposit, typically they give the bank or insurance company a sum of money and then the interest on that CD accrues until maturity. Then, the client goes to the bank and can withdraw all the funds, including all of the interest that has been accrued. Basically, the bank is doing the same thing with a reverse mortgage. It's lending money on the equity in the home and it waiting for the payments. There is never any payment due on a reverse mortgage until the home is sold[.]"

Does the Bank Then Own the Home? No.

One of the biggest misconceptions about reverse mortgages that Antonelli hears from seniors is that they fear it means that the bank owns their home in the process. Not so, he assured us: "[Seniors] think that the bank takes over their home, [that] the bank wants their home. The bank doesn't want their home; they just want to be paid back for the loan at some point. The senior is still on title on the home, they're still required to pay the taxes and the insurance and maintain the home. And when it comes time to pay off the mortgage, for whatever reason, it's just a mortgage. Just like any [regular] mortgage that gets paid off when the house gets sold, [a reverse] mortgage gets paid off when the house gets sold, as well, and the heirs [or seniors, if still living] get whatever is left over."

When Is It Time to Consider a Reverse Mortgage?

Who can benefit from a reverse mortgage, and what is the most typical situation that mortgage lenders see? "About 85% of the reverse mortgages I originate," Ray said, "are for seniors who are literally going backwards every month. They're running out of money before the month ends, and they're either attacking their retirement savings or they're going out on their credit cards to meet normal monthly expenses. If they have paid their home off, or at least have paid it down to less than 50% of the appraised value, I can originate a reverse mortgage for them and it basically fixes that problem more or less instantly because it provides them tax-free cash--because this is a loan, it's not income. It's a loan that they can use to pay their monthly living expenses."

What About Social Security? Medicare? Medicaid?

Understanding how financial options such as a reverse mortgage affect other benefits such as Social Security, Medicare, and Medicaid is an ongoing concern for seniors who are exploring their options. "Social Security and Medicare payments are not affected at all by the reverse mortgage proceeds" Antonelli said. "The reverse mortgage proceeds are treated as a loan, so there's no tax implication. [Seniors] don't have to pay taxes on the proceeds of the reverse mortgage because it's loan money. It just doesn't have to be paid back right away, which is what makes it so attractive. Medicaid is a different story. Medicaid is asset based. Even though the funds are a loan, that is an asset of the estate and that would affect Medicaid benefits. So, the senior does need to consult with a CPA or an attorney that specializes in senior financial situations to advise how best to handle that." Typically, however, Medicaid comes more into play when transitioning into an eldercare community or assisted living situation, so that may not apply to many seniors who are interested in a reverse mortgage.

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Here at HandyPro, we make your well-being our priority. Our interview series goes hand-in-hand with that effort, and we hope you find it helpful! For more information on how we can help you make your home a home for life, visit us at www.StayAtHomeModificationsInc.com or call me (Brian Pritchard) at 216-212-7531.

To consult with Ray Antonelli about a reverse mortgage, you can email him at Ray100@gmail.com or call 216-337-7520.

To listen to the full conversation between Ray and I, please use the player below...