A recent Reverse Mortgage inquiry has brought up the topic of weighing the benefits and risks of Non-FHA Reverse Mortgages.
This particular couple has a 20-year age difference between them. He is 70 and she is 50. He works in a high-earning profession, but experienced an income interruption due to COVID. They hoped to get an FHA Reverse Mortgage to eliminate their existing mortgage payment, but do not have enough equity in their home to qualify due to the wife’s age. FHA Reverse Mortgages are calculated based on the age of the younger borrower and both spouses are required to be a party to the loan. This requirement made all the difference in their ability to qualify, but is meant to protect the younger spouse from being left in a bad financial situation upon the death of the older spouse.
This couple is now considering a non-FHA product which would allow them to remove her completely from the transaction and have the new loan is his name alone. If they move forward with this Non-FHA loan, and the husband passes away before his wife, the loan will come due at that time. The wife may not have the financial resources to refinance the loan into her name – with either a traditional or a Reverse Mortgage – which may leave her with no choice but to sell the home. However, their current situation doesn’t leave her any less exposed to a financial disaster since she would be unable to afford their monthly mortgage payments on her own if something happened to him.
There are two primary factors to be taken into consideration for this decision – their current circumstances and potential future circumstances.
Their current circumstances could be improved by the Non-FHA Reverse Mortgage because they would no longer be required to make monthly mortgage payments.
To improve potential future circumstances, they may need to consider purchasing life and/or disability insurance products that would protect her financially.
We do not sell insurance and therefore cannot provide recommendations on products, but we are happy to refer you to professionals who could help if you find yourself in a situation like this one.
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