I am 65 and my wife is much younger. Can we get a reverse mortgage?

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 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. But are they all that great? Reverse mortgages are complicated, risky, and expensive. Getting this kind of loan generally isn't a good idea.

Reverse Mortgages

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. The loan generally has to be paid back when you die, move, transfer title, or sell the home. If you breach the terms of the loan contract, though, the lender might call the loan due earlier. Under any of these circumstances, if you don't pay off the loan, you could potentially lose the property to a foreclosure.

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.

Because you're 65 years old, you appear to qualify for a reverse mortgage, but your 40-year old spouse doesn't. One way that used to be popular to get around this eligibility issue was to deed the title to the property solely into the older spouse's name and leave the younger spouse off the reverse mortgage. But this tactic can cause major problems.

The Problem With Leaving Your Spouse Off a 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 had 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 specific 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 specific criteria is met. (Learn more in Nolo’s article Reverse Mortgages: Foreclosure Protections for Non-Borrowing Spouses.)

If you're thinking about taking out a reverse mortgage with a non-borrowing spouse, be very careful and be sure to talk to a lawyer or HUD-approved housing counselor to learn how to adequately protect the non-borrowing spouse in this situation.

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. These mortgages provide a finite number of payments and you could run out of money if you take out a reverse mortgage at this time. And you could spend down the equity in your home early on and then not have enough funds available down the road to cover your later expenses, which could likely include health care costs, leaving money to your heirs, 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.

Other downsides include:

• Getting a reverse mortgage could affect your eligibility for Medicaid.

• The fees on a reverse mortgage tend to be high.

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

It's recommended that you proceed extremely cautiously if you're thinking about taking out a reverse mortgage. Reverse mortgages are very complex. HECM counselors have reported that it often takes at least a couple of hours to explain how these mortgages work and cover all of the topics—including costs and consequences—that borrowers need to understand before taking out this kind of loan.

Even after a HECM counseling session, many borrowers still don’t fully comprehend all of the reverse mortgage terms and requirements. Consider also talking to a financial planner, an estate planning attorney, or a consumer protection lawyer to get more information, especially you don't fully understand the terms of reverse mortgage loans.