Reverse a Reverse Mortgage
A client dropped in and asked how to reverse a reverse mortgage.
I told him I’m not a mortgage broker but it’s an interesting question. We did a quick Internet search and saw there were approximately five methods to reverse a reverse mortgage. In my opinion all of them would result in an unhappy retirement.
These things should be disclosed or disclaimed by the bald figure skater who is Canada’s Brian Boitano. He is going to be doing quad quads on your lawn as you move out.
Your first choice to get out of a reverse mortgage is to exercise your right of recission in writing during the first three days.
“Life Insurance agents make bad lawyers, I’m not sure if you have a right of recission in Canada or New Brunswick,” I said.
Number two, you can pay off the reverse mortgage. That ridiculous suggestion made me smile, of course it becomes serious when you think of how unlikely it is the senior citizen would qualify with sufficient debt service ratio or cash flow for a mortgage to pay off their reverse mortgage.
Thirdly you can refinance your reverse mortgage; see the challenge in number two.
If you want to get out of a reverse mortgage you could simply apply for a conventional loan. Finally, you can sell your house to pay off the reverse mortgage plus fees and interest. Which is the one step that the advertisement insists that you will never have to do while you’re alive.
So, getting out of a reverse mortgage would be financially painful.
Why would you want to get out of a reverse mortgage? There could be countless examples of why you would want to get out of a reverse mortgage. For example you’re planning to go into an assisted living facility and want someone who is not on the deed but are cohabitating with to remain in the house for the remainder of their life. Twelve months after your exit to the special care home would trigger the sale and the person would have to leave.
Reverse mortgage rates are higher than a home equity loan rates, the compound interest plus early repayment penalties and closing fees would add to the repayment amount. The catch,there may not be the necessary equity to cover these amounts.
Triggers
A couple other things that could trigger the sale of your home or early repayment of a reverse mortgage are failing to pay the insurance or taxes.
What is the probability view dying while you’re living at home vs. dying in an assisted care facility. A collection of traps in a reverse mortgage will be sprung if you tried to pay off a reverse mortgage early.
I was a trustee for the New Brunswick Nursing Home Staff Pensions. I remember one of the actuaries saying the average stay in a nursing home is seven months. So, on average houses would not be sold. However, my mother has been in special care for more than a decade and will be one hundred this year. If she had a reverse mortgage her house would have been sold.
You would need to have a crystal ball to know the future and manage your risk in this product.
The need for independent legal advice http://lawsociety-barreau.nb.cais at the extreme end of critical when planning to get a reverse mortgage.
