Divorce

This is a fictional scenario based on real-life situations I’ve seen: Sam and Sara have been married for a number of years, and have made the difficult decision to get a divorce. They are both in their 70s and jointly own their house with a value of $600,000.

Sara wants to stay in the family home; Sam is agreeable but wants to be able to buy a small condominium. However, there is a $200,000 mortgage on the family home, and the current lender is not willing to release Sam from that obligation unless it is paid off in full. The lender’s position is that Sam and Sara both signed the loan documents, and this cannot be changed.

Sara does not have the financial ability to refinance the existing loan, and Sam is concerned that if he puts his name on the refinance for Sara, he will not be able to buy the other property.

This is a very common problem throughout the country. With the divorce rate increasing among seniors (the “silver” divorce), too many couples seeking a divorce either have to sell the family home or the spouse who will not remain in the property is unable to buy something else.

Sara opts for a reverse mortgage. Using a calculator such as the one that can be found on the web ( www.
reversemortgage.org/about/reverse-mortgage calculator ) it appears that Sara can get approximately $286,000 from an authorized lender. The $200,000 mortgage will be paid off, and Sara will be able to live in the house without having to make any more monthly mortgage payments. She will, however, have to pay the real estate tax, maintain proper insurance coverage as well as keep the property in good condition.

In our example, in addition to having the current mortgage paid off, Sara can also get a lump sum of $86,000. In consideration for Sam agreeing to transfer his interest to Sara, she can agree to give him those funds, which he can then use as a down payment on the condo he wants to buy. Sam would be using what is known as a Home Equity Conversion Mortgage for Purchase, HECM for Purchase or simply H4P.

Once again, every situation is different, but in general — and depending on Sam’s age at the time he makes the loan application — he will be able to get a reverse mortgage loan of between 47 and 52 percent of the purchase price of the new property. The older you are, the more money you are eligible to get.

There are a few requirements: You must live in the new property; it must be your principal residence. You must go through consumer counseling; the lender — and the government — want to make sure you fully understand what you are pursuing. And you must prove you are financially able to pay the real estate taxes, insurance, general maintenance and upkeep and any applicable community association dues.