Not only may a Reverse Mortgage be a viable option for divorcing clients who want to remain in the marital home; it may be a wise financial planning
decision as well. Taking a reverse mortgage can also have implications on the tax bill, and for configuring potential Social Security income. You may be able to limit the income tax exposure by using cash flow from a reverse mortgage, rather than taxable withdrawals from a 401(k) or other retirement investment, to pay off a traditional mortgage or other debts. If you can delay taking Social Security by using a reverse mortgage as a source of income, you can increase the monthly payment you will eventually receive.
Divorcing clients over the age of 62 may have the option of utilizing a Reverse Mortgage for an Equity Buyout and keeping the home. The HECM is the only reverse mortgage insured by the federal government. HECM loans are insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). The FHA tells HECM lenders how much they can lend you, based on your age and home value. The HECM program limits your loan costs, and the FHA guarantees that lenders will meet their obligations.
HECM Benefits. The HECM program provides the widest array of cash advance choices. You cantake your entire loan as a:
- single lump sum of cash; or
- “creditline” account of a specific dollar amount that you control, that is, you decide when to make a cash withdrawal from this account, and how much cash to withdraw; or as a
- monthly cash advance for a specific period of time, or for as long as you live in your home.
In addition, you can choose any combination of these options, and change your cash advance choices at any future time.
Plus a Monthly Advance. The HECM program lets you combine a lump sum, a credit line, or both with
a monthly advance. A monthly loan advance does not increase or decrease in dollar amount over time. So it will buy less in the future as prices increase with inflation. You can choose to have monthly HECM advances paid to you for:
- a specific number of years that you select (a “term” plan); or
- as long as you live in your home (a “tenure” plan).
A term plan gives you larger monthly advances than a tenure plan does. The shorter the term, the greater the advances can be. But the advances only run for a specific period of time. You do not have to repay the loan when the term ends, but you no longer receive monthly advances past the end of the term you select.
Again, a Reverse Mortgage has many options for divorcing clients over the age of 62. Please contact me if I can provide additional information!
It is always important to work with an experienced mortgage professional who specializes in working with divorcing clients. A Certified Divorce Lending Professional (CDLP) can help answer questions and provide excellent advice. To find a CDLP in your area, please click here.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only, and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.