Implementing Reverse Mortgages in Mature Divorce
When a mature couple files for divorce their Arizona marital home is often mortgage-free, a valuable asset that must be divided. Along with deciding which spouse shall remain in the home (assuming the property is not sold as part of the divorce and the proceeds divided), an important consideration is the availability of a reverse mortgage on that residence. Parties to a late-in-life divorce need to fully appreciate the benefits and detriments of mature home ownership when deciding who stays and who leaves.
Reverse Mortgaging the Home After a Mature Divorce.
An older divorcing couple has to face financial issues that affect them solely because of their ages. When the homeowner reaches age 62 and enjoys substantial home equity, that real property may be used for a reverse mortgage – that is, the Home Equity Conversion Mortgage offered through FHA. (Although proprietary reverse mortgages are available through certain financial institutions, we’re only discussing the popular HECM program today.)
Under a reverse mortgage, the homeowner can continue living in the home while converting a portion of the home’s equity into cash payments. That the spouse receiving the marital home in the property settlement will have the option of reverse mortgaging (and the other party will not) is an important consideration in a mature divorce.
Here are six important points concerning reverse mortgages:
- An HECM borrower must be age 62 or older; must own a home mortgage-free or with a very low principal balance that can be satisfied with the HECM; and must use the home as his or her principal residence.
- An HECM mature borrower does not need to repay the loan until he or she either stops using the home as a primary residence or no longer can satisfy the mortgage obligations.
- An HECM may be used to purchase a home if the mature borrower has sufficient cash on hand to cover the difference between the purchase price (including closing costs) on the new primary residence and the HECM amount. This is a great way to downsize into a smaller home.
- The residence to be mortgaged must either be a single-family home or be a two- to four-unit home with the mature borrower occupying one of those units. Condos and manufactured homes approved by HUD are included in the FHA reverse mortgage program.
- The HECM pays the mature borrower, giving him or her regular cash payments (that’s the “reverse” in mortgage – the lender pays the borrower). Careful, the homeowner is solely responsible for paying the utilities, insurance, and property taxes on the home.
- The HECM is not free money! When the mature borrower stops using the home as a principal residence for any reason, then the cash, interest, and finance charges are all due. If the borrower passes away before the HECM is satisfied, then the decedent’s estate must repay the HECM obligation (just as with any mortgage) before any remaining home equity or proceeds from the sale of the home will pass to the decedent’s heirs.
There are many property settlement and spousal maintenance issues particular to mature divorces. Our experienced divorce attorneys help couples of all ages face marital dissolution with dignity and respect.