A reverse mortgage can be a lifesaver for some retirees. Under the right circumstances, the arrangement allows a retiree to (1) stay in their home for the rest of their life, and (2) draw on a reliable stream of income from the home. When they pass away, the individual will no longer own the home, but as the saying goes, you can't take it with you anyway.
But the caveat lies in the "under the right circumstances" part. There are lots of details surrounding the different types of reverse mortgages you can get, which you can check out here. For the purposes of this article, however, we'll focus on three common errors. If you commit them, you could not only lose your home, but also the income that you're getting from your reverse mortgage.
1. Not paying the bills
Even though you might think that the bank "owns" your home, the title is still in your name. That means that you're responsible for covering both property taxes and homeowner's insurance. For many people, this can be an easy task to overlook. When you are paying off a regular mortgage, your monthly check to a bank's escrow account includes the principal and interest as well as property tax payments and homeowners' insurance.
Failure to keep up on either of these will result in serious trouble. If you don't find a solution with your lender, you can be considered in foreclosure and kicked out of your house. If you are worried about this, you can now set up similar escrow accounts to ensure your payments are kept up to date.
2. Moving out of your house for any reason
If you're considering a reverse mortgage, you need to understand the need to stay in your house. That's because once you move out of your house, the bank generally has the right to sell the house to cover the costs of the loan.
If the amount you owe the bank is less than what it sells for, you get the difference. If you owe more that what the house is worth, you won't owe the difference, but you also will be left without a home or a source of income.
This provision is crucial to understand in cases where you might be forced to live in a nursing home. Until recently, even the spouse of the person whose name was on the reverse mortgage could be required to leave the home. New legal provisions now protect spouses in that situation, but if you have children or other family members other than your spouse living with you, and their name(s) aren't on the reverse mortgage, they could be forced out of the home within 12 months.
3. Letting the general condition of the home deteriorate
Remember, the bank is going to sell your house after you pass away. Therefore, it has a vested interest in making sure that the general condition of the house is up to date. While that doesn't mean you need to remodel or give the home a meticulous cleaning on a daily basis, it does mean following common-sense guides for upkeep.
As you get older, some regular maintenance will become difficult. It would be wise to investigate options for contracting out plumbing, yard, pest management, and roofing/leakage work. Doing so will both help ensure that the house stays in good condition, but also give you an idea for the unexpected costs you'll still have after getting a reverse mortgage.
Hopefully, the financial institution you work with will make all of these provisions abundantly clear to you. But you can never be sure, and it's vital that you carefully consider all of these circumstances before signing on the dotted line of a reverse mortgage.