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Nonrecourse Reverse Mortgages

By Terry Savage on October 18, 2020 | Housing / Real Estate

For a widow who is 80 years old on Soc. Sec. with a $65,000 mortgage and similar amount in 401K, does a nonrecourse reversible mortgage (HECM) make sense for additional cash flow? Thank you.

Terry Says

It is definitely something to look into IF:
1. You play to stay in the house until you die. That’sbecause when you move out, the loan and interest must be repaid when the house is sold. That will leave you with less money to move to a senior residence or nursing home. But “non-recourse” means you can never owe more than the home is worth. And if you die at home, your heirs can either pay the balance and keep the family home, or sell it. But they can’t owe more than the sales price either.

2. You must have enough money to continue to pay insurance, taxes and property upkeep. Otherwise you will violate the terms of your reverse mortgage.

A reverse mortgage requires independent counseling, and they will explain all these considerations. So it’s worthwhile starting the process. I’ve written many times how my father’s reverse mortgage allowed him to stay in his condo until age 96, when he passed away. But I was there to add support when special assessments came around. And when he passed, he had lived far longer than the Reverse Mortgage actuarial statistics — so the balance was far more than the condo was worth at the time. The lender is insured for the loss they took.
A reverse mortgage is essentially a bet you make on your longevity and good health to live there for a long time.

One other thought. You sound active and articulate. It’s better to make the move to senior living while you are healthy and alert, and can make new friends. Of course, in this time of Covid, that’s not an attractive place to go. But if you think you want to do this when the Covid pandemic is over, then don’t do a reverse mortgage now.

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