Different needs as you age
Younger seniors may be more likely to use a reverse mortgage loan for travel, living expenses or financial planning, while older seniors more often have health care needs, says Meehan.
While those scenarios may be common, there are no restrictions — age-related or otherwise — on how seniors can use reverse mortgage proceeds.
Beth Paterson, certified reverse mortgage loan professional at Reverse Mortgages SIDAC in St. Paul, Minnesota, recalls a 96-year-old borrower who used a reverse mortgage to hit the road.
“She had a $2 million home, condo in Florida and lot of (other) assets, and she was still able to travel, so she did the reverse mortgage instead of tapping into her other retirement funds,” Paterson says.
Understanding a reverse mortgage
No mental competency test or medical exam is required to get a reverse mortgage loan. However, lenders are aware that competency can diminish with age.
Loan officers “should not ignore” any signs of diminished capacity, says Wills, of Open Mortgage. “You have to understand what you are signing.”
Meehan, with Movement Mortgage, asks seniors to recall short-term information while he speaks with them, to get a feel for whether they fully understand. He also may ask older seniors whether a family member or other trusted adviser can review the loan information with them.
In some cases, a guardian, adult child or other trusted financial adviser given power of attorney may be involved in a senior’s reverse mortgage loan.
Wills says a power of attorney must be accompanied by a physician’s letter confirming that the authorization was given when the borrower was mentally competent.
Fulfilling the financial assessment
All reverse mortgage borrowers must complete a financial assessment to help ensure they’ll be able to maintain their home and pay their property taxes and homeowners insurance. This assessment isn’t used to approve or deny a loan, but it may prompt a lender to set aside part of the loan proceeds to pay taxes and insurance on the borrower’s behalf.
The financial assessment may be more challenging for some older seniors.
“Sometimes the older people don’t have part-time jobs but may just be living on Social Security, so sometimes it may be a little bit harder (for them) to qualify under the financial assessment,” Wills says.
But here’s something that can offset a set-aside, if it’s required: Older borrowers can tap a larger percentage of their home’s equity. The reason is that their life expectancy is shorter, meaning the expected term of their loan will be shorter, too.
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