Question

I am 65 and my wife is 40. We have paid off a significant portion of our regular mortgage so we have quite a bit of equity in our home. Can we get a reverse mortgage?

Answer

It sounds like you can probably qualify for a reverse mortgage, but it might not be your best option.

Reverse Mortgages

Reverse mortgages have been touted as a great way for cash-strapped older citizens and retired persons to get spending money without having to give up their homes. The most popular reverse mortgage is the FHA's Home Equity Conversion Mortgage (HECM). With a reverse mortgage, you receive payments from the lender based on the equity in your home and the loan generally doesn’t have to be paid back until you die, move, or sell the home. (If you breach the terms of the loan contract, though, you might face a foreclosure. Learn more about reverse mortgages in Nolo’s article What's a Reverse Mortgage?)

Eligibility Criteria

Generally, to qualify for a reverse mortgage you must:

• be 62 years of age or older
• occupy the property as your principal residence, and
• have substantial equity in the property or own the home outright.

(You can find out more about how to qualify for a HUD-insured HECM from the FHA website by running a search for “reverse mortgage.”)

Because you are 65 years old, you appear to qualify for a reverse mortgage, but your 40-year old spouse does not. One way that used to be popular to get around this was to deed the title to the property solely into your name and leave your spouse off the reverse mortgage, but this can cause major problems.

The Problem With Leaving Your Spouse Off the Reverse Mortgage

In the past, reverse mortgages were written so that once the borrower dies, the surviving spouse (who was not named on the loan) was often told he or she has to repay the loan immediately or else the lender would foreclose on the property.

The law changed. In 2013, a federal court ruled that the HUD regulation that allows lenders to demand that surviving spouses immediately repay reverse mortgage loans upon the death of their spouses violates federal law. Under revised HUD guidelines, for loans issued on or after August 4, 2014, the non-borrowing spouse may remain in the home after the borrower dies (and the loan repayment will be deferred) so long as certain criteria is met. For HECMs taken out before August 4, 2014, the lender can choose to assign the mortgage to HUD and the non-borrower spouse can remain in the home so long as certain criteria is met. (Learn more in Nolo’s article Reverse Mortgages: Foreclosure Protections for Non-Borrowing Spouses.)

Another Issue: You Could Run Out of Money

You, and especially your spouse, are both relatively young to be taking out a reverse mortgage considering the average lifespan in the U.S. is almost 80 years. You could spend down the equity in your home early on and then not have enough funds available down the road to cover your expenses later on, which could likely include health care costs, as well as taxes, insurance, and upkeep for the property. Also, keep in mind that to get the reverse mortgage you’ll typically first have to pay off the existing mortgage with the reverse mortgage funds. (Read about reverse mortgage restrictions and requirements.)

Reverse mortgage lenders provide a finite number of payments and you could run out of money if you take out a reverse mortgage at this time.

Other Options to Consider

You don’t mention why you’re thinking of taking out a reverse mortgage, but if you need access to cash, a few other options for you to consider as an alternative to taking out a reverse mortgage include:

• getting a Home Equity Line of Credit
• refinancing your existing mortgage to lower the payments
• obtaining a loan modification for your existing mortgage to lower the payments
• downsizing to a more affordable home, and/or
• applying for federal, state, or local programs that provide financial assistance (to pay property taxes or make home repairs, for example) to seniors.

Getting Help

For more information about reverse mortgages, as well as other available options for older homeowners, see AARP’s website.

Reverse mortgages are very complicated and not always a great idea. Before getting a reverse mortgage, consider talking to an estate planning lawyer or a consumer protection lawyer.