You’ve seen the commercials for Reverse Mortgages. If you’re over 62 and have equity in your home, you tuck it away in case you need it down the road.
But if you’re considering a divorce, a reverse mortgage can become a useful tool. It could allow one spouse to remain in the home while relieving the financial burden on both partners.
HOW A REVERSE MORTGAGE CAN MAKE DIVORCE LESS (FINANCIALLY) PAINFUL
REVERSE MORTGAGES AND LIVING SEPARATELY.
Many couples who separate later in life find themselves unable to support the costs of two households.
Here is where a reverse mortgage can help…
The loan allows you to choose how you withdraw the equity in the home, whether as a lump sum, a series of ongoing payments, or a combination.
If one spouse prefers to remain in the home but cannot meet the monthly mortgage payments, a reverse mortgage can be used to pay off the mortgage, with any remaining proceeds going to the moving spouse.
Say you have a $300,000 home with an $80,000 mortgage balance at age 72.
You may be able to borrow a little more than $200,000, with $80,000 going to pay off the existing mortgage and the remaining $120,000 to be used however you choose.
You will have to remove the moving spouse from the home title, which can take place during the loan. This will allow one spouse to keep the home, payment-free, while the other can keep the remaining cash.
As with any reverse mortgage, the loan becomes due when the borrower moves from the home or passes away. He or she must continue to pay property taxes and homeowners insurance over the life of the loan.
HOW A REVERSE MORTGAGE CAN BE USED TO PURCHASE A NEW HOME(S):
A relatively new type of reverse mortgage may also be a useful solution for a divorcing couple.
If neither spouse wishes to remain in the home, a reverse mortgage purchase loan allows the homeowner to purchase a new home while taking out a reverse mortgage in a single transaction.
This may enable one spouse to move to a new home through the reverse mortgage while the other can walk away with part of the remaining cash proceeds.
This might work particularly well in the case where the borrower is downsizing.
Can a reverse mortgage be taken to fund/settle the divorce payout?
Yes. The spouse who wishes to remain in the property can apply for a reverse mortgage and use the available proceeds to pay the other spouse to finalize the divorce settlement. To accomplish this, there must be a written agreement filed with the court outlining the terms.
Will a divorce cause my reverse mortgage loan to be called due and payable?
Not necessarily. If you were a borrower on the reverse mortgage and you stay living in the property as your primary residence, your loan will not be called due and payable. If you were not a borrower on that loan and you are the one who wishes to stay in the home, you will need to pay off the reverse mortgage loan or it will be called due and payable after the borrowing spouse no longer occupies the property as their primary residence.
‘Grey’ divorces bring their own complexities, as does divorce at any age. The Family Law attorneys at Hoffman, Larin & Agnetti have been helping families throughout South Florida for over 35 years and have the experience and expertise to negotiate or litigate a good outcome.
Call us for your FREE consultation at 305-653-5555.
Experience and Results Matter.