Ah, mortgage payments. Nobody likes to have them, but in reality, many of us do. As a matter of fact, housing debt is the largest category of American debt—ahead of auto, student loan debt, and credit card loans. And while we all plan to pay off our mortgages before retirement years, this isn’t always the case. A recent study found that 46% of homeowners between the ages of 65 and 79 still had mortgage debt, with a median balance of $77,000. What’s more, 26% of homeowners ages 80 and older also still had mortgages, with a median balance of $43,0001.
If you’re entering retirement with a mortgage or housing debt, you’re not alone. The good news is that there are still ways to pay off this debt in retirement.
If you’ve done any research on reverse mortgages, by now you know the borrower benefits: income tax-free* proceeds to use as you wish, maintaining complete title and ownership of your home—the list goes on. But perhaps the predominant benefit of a reverse mortgage, and the one that is met with the most skepticism, is that there are no monthly mortgage payments required**.
Unlike traditional “forward” mortgages where you’re required to make monthly payments towards your loan balance for several years, reverse mortgages do not require you to make any monthly mortgage payments at all. If you have an existing mortgage loan on your home, the proceeds from the reverse mortgage are first used to pay off the balance, freeing up more cash for you to use as you wish.
And no, it’s not too good to be true. When it comes to reverse mortgages and monthly mortgage payments, here’s what you need to know.
No Monthly Mortgage Payments Are Required So Long as You Meet Loan Terms
Loan terms? Don’t worry—these aren’t as stringent as you may think. In order to qualify for a reverse mortgage, the home must be your primary residence, meaning you spend the majority of a calendar year (at least 183 days) there annually. You must also remain current on property taxes, homeowners insurance, and other mandatory financial obligations, such as HOA or condo fees. Finally, you must maintain the condition of your home. As a borrower, you are responsible for keeping your property and home in good repair.
You Can Make Payments Whenever You’d Like
While no monthly mortgage payments are required on a reverse mortgage, you have the freedom to pay as little or as much as you want, as often as you’d like. As you draw on the equity in your home, interest accrues on the loan, causing the balance to increase. And while the reverse mortgage loan repayment process doesn’t have to begin until you either permanently vacate the home or fail to meet the loan terms mentioned above, making payments over the course of the loan will allow you to start chipping away at the balance proactively.
When It Comes Time to Repay the Loan, Your Heirs Are Protected
Reverse mortgages are different from forward mortgages in that they are considered non-recourse loans. Simply stated, as a borrower, neither you nor your heirs will be required to repay more than the value of your home. Non-recourse loans ultimately protect your heirs by giving them the option to sell the home and use the proceeds to repay the loan in its entirety. No other assets can be taken from your heirs to repay the balance.
Just imagine living out your golden years without the financial stress of a monthly mortgage payment… A reverse mortgage can make this dream a reality. With the ability to defer repayment, a reverse mortgage could provide you an additional source of income and monthly cash flow.
*Consult a financial advisor and appropriate government agencies for any effect on taxes or government benefits.
** Real estate taxes, homeowners insurance, and property maintenance required.