13 Dec Can we undo a reverse mortgage to keep the home?

Q. Is it possible to settle a reverse mortgages so folks can keep their home if they change their minds? Or can their kids buy it out and keep their parents’ home?
— Planning

A. The rules that surround reverse mortgages can be confusing.

A reverse mortgage is a powerful product that enables seniors to access the equity in their homes even when they are unable to qualify for a conventional mortgage or home equity line of credit, said Eric R. Goldberg, Co-Chair, NJ Elder Law Center at Mandelbaum Salsburg in Roseland.

He said there are common misconceptions regarding reverse mortgages, the first being that the bank owns the home.

“I explain to clients that a reverse mortgage is merely an easier way for those 62 and older to qualify for a traditional home equity line of credit without a requirement to pay back principal and interest over time,” he said. “This is important to seniors on a fixed income who wish to borrow money without a monthly loan payment.”

Of course, the downside to not paying principal and interest is that over time the loan balance increases rather than decreases, he said.

Just like a traditional mortgage, when the borrower moves or passes away, the bank expects to be reimbursed.

“If the loan balance exceeds the value of the home, the bank takes ownership,” Goldberg said. “If the value of the home exceeds the loan value, the homeowner — or heir — may sell the home and pay off the loan.”

Goldberg said if the homeowner wishes to reduce the outstanding loan during homeownership, then that is acceptable as well. Paying down reverse mortgage debt serves merely to increase the amount of money available to borrow later, he said.

Contact the company that has the reverse mortgage to discuss the particulars of the loan.

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This story was originally published on Dec. 13, 2019.

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