How to use a Reverse Mortgage in a Divorce Settlement
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Michael G. Branson, CEO of All Reverse Mortgage, Inc., and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively. (License: NMLS# 14040) |
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All Reverse Mortgage's editing process includes rigorous fact-checking led by industry experts to ensure all content is accurate and current. This article has been reviewed, edited, and fact-checked by Cliff Auerswald, President and co-creator of ARLO™. (License: NMLS# 14041) |
You may have heard about how 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 home equity, 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 can relieve some financial burdens 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 is where a reverse mortgage can come into play…
The loan allows you to choose how you withdraw the equity in the home, whether as a lump sum, a series of ongoing payments, or a combination of one spouse prefers to remain in the house 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.
For example:
Say you have a $300,000 home with an $80,000 mortgage balance at age 72. You can 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 must remove the moving spouse from the home title, which can take place during the loan.
As with any reverse mortgage, the loan becomes due when the borrower moves from the home or passes away. They must continue to pay property taxes and homeowners insurance over the life of the loan. This will allow one spouse to keep the home payment free while the other can save the remaining cash.
Reverse Mortgage for Purchase
A relatively new type of reverse mortgage may also be a valuable 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, enabling 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…
When a couple with 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.
Divorce FAQs
What happens to a reverse mortgage in a divorce?
Can a reverse mortgage be taken to fund/settle the divorce payout?
How does my existing reverse mortgage affect my new spouse?
Will a divorce cause my reverse mortgage loan to be called due and payable?
If I divorce, can I get a new reverse mortgage of my own?
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