You may have heard about the ways in which a reverse mortgage can help improve your financial situation by allowing you to withdraw the equity in your home over time.
For those people meeting the 62-year-old age requirement who have substantial equity in their homes, this can be a means to expand monthly cash flow or eliminate mortgage payments by paying off an existing mortgage through a federally-insured loan.
However, there is another important time when a reverse mortgage can be a helpful tool: in a divorce.
While taking charge of which spouse will keep which assets, a reverse mortgage may be able to relieve some of the financial burden on each spouse while allowing them to live separately.
Reverse mortgages and living separately
Many couples who separate later in life find themselves unable to support the costs of a home once supported by two partners now that they are independently responsible.
Here’s where a reverse mortgage can come into play…
The loan allows for you to choose how you withdraw the equity in the home, whether as a lump sum, a series of ongoing payments or a combination. If one spouse prefers to remain in the home but cannot meet the monthly mortgage payments, a reverse mortgage can be used to pay off the mortgage, with any remaining proceeds going to the moving spouse.
Say you have a $300,000 home with an $80,000 mortgage balance at age 72. You may be able to borrow a little more than $200,000, with $80,000 going to pay off the existing mortgage and the remaining $120,000 to be used however you choose. You can even wire the funds to the moving spouse at closing.
You will have to remove the moving spouse from the home title, which can take place during the course of the loan.
This will allow one spouse to keep the home, payment free, while the other can keep the remaining cash.
As with any reverse mortgage, the loan becomes due when the borrower moves from the home or passes away. He or she must continue to pay property taxes and homeowners insurance over the life of the loan.
Reverse Mortgage for Purchase
A relatively new type of reverse mortgage may also be a useful solution for a divorcing couple. If neither spouse wishes to remain in the home, a Reverse Mortgage Purchase loan allows a homeowner to purchase a new home while taking out a reverse mortgage in a single transaction. In the same way a standard reverse mortgage can help, this may enable one spouse to move to a new home through the reverse mortgage while the other can assume some of the remaining cash proceeds.
This might work particularly well in the case where the borrower is downsizing.
If you get divorced and already have a reverse mortgage…
In the case where a couple who has a reverse mortgage together decides to get a divorce, they must submit the divorce decree to the loan servicer. At that point, one of the spouses will be permitted to be removed from the home title, keeping the loan in the remaining spouse’s name.
The experts at All Reverse Mortgage® are here to answer your questions! If you are facing divorce and would like some help with the numbers give us a call Toll Free (800) 565-1722 or calculate your available reverse mortgage amount here.
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