Reverse mortgages can provide cash to seniors whose net worth is primarily tied to the value of their home. A reverse mortgage is a loan given to homeowners who are 62 years of age or older and have considerable net worth. It allows these seniors to borrow money against the value of their home and receive funds as a lump sum, fixed monthly payment or line of credit. the entire balance of the loan becomes due when the borrower dies, moves permanently or sells the house.
Reverse mortgages may be suitable for snowbirds who are also seniors, i.e. seniors who migrate from colder northern regions of North America to warmer southern regions, usually during the winter months. ‘winter. Many snowbirds have second homes in Sun Belt, Hawaii, or Florida, and so have accumulated equity in two separate properties. This begs the question: is it possible to have a reverse mortgage on both?
The answer, unfortunately, is no. In this article, we’ll tell you why and what your alternatives are.
There are three types of reverse mortgages. The most common is the home equity conversion mortgage (HECM). Under this program, the mortgage amount you can borrow will be the lesser of 1) the appraised value, 2) the HECM FHA mortgage limit of $970,800, 3) the sale price (applicable only to HECM for purchase). If you need to borrow more, you can consider a Jumbo Reverse Mortgage, also known as a Homeowner Reverse Mortgage.
- Many snowbirds have the equity in two homes: their primary residence and their vacation home.
- A reverse mortgage can be a good way to access that equity, but you can only have one at a time.
- Reverse mortgages can only be taken out on your “principal residence”, i.e. the place where you spend most of the year.
- There are, however, other ways to access the equity in your properties. These include a cash refinance or a home equity loan.
Reverse Mortgages for Snowbirds
Many snowbirds choose to buy a second home in their vacation spot of choice, whether it’s Florida, Hawaii, or another warm, sunny location. They may also have accumulated significant equity in what has been their primary residence. It’s possible to use a reverse mortgage to access some of that money, by providing regular monthly payments, a lump sum, or a line of credit, in exchange for handing over the equity in your home.
However, it is only possible to have one reverse mortgage at a time. This is because of the residency rules for reverse mortgages, which state that the property on which you have the reverse mortgage must be your “principal residence”. In practice this means that you cannot be away from a property for more than six months and still have a reverse mortgage on it.
This effectively prevents snowbirds from taking out a reverse mortgage on their second home if they already have a reverse mortgage on their primary home. However, if you have invested a significant amount of equity in your second home and want to access it, there are other ways to do so.
If you have a second home and spend a lot of time there, pay attention to the residency rules for reverse mortgages. If you are away from your primary residence for more than six consecutive months, your reverse mortgage lender may assume that you are in breach of the loan terms and may even initiate foreclosure proceedings. Be sure to keep records and respond promptly to requests (usually yearly) to confirm your place of residence.
Access to Equity for Snowbirds
A reverse mortgage isn’t the only way to access the equity you’ve built up in a property, however. In fact, reverse mortgages only make sense for a small proportion of older homeowners. Indeed, the high costs associated with reverse mortgages make other forms of borrowing more profitable in the long term.
And unlike reverse mortgages, it’s possible to use these alternative sources of borrowing on two properties at once, or use them only in conjunction with your holiday home. These alternatives include:
- Cash refinancing. If you’re looking to access a large amount of equity at once, a cash refinance can help. This means that you must make monthly payments to a lender. However, in the long run, you can retain more of your principal compared to a reverse mortgage, and you can cash in on both of your properties at the same time if it makes financial sense.
- A home equity loan or home equity line of credit. HELOCs provide homeowners with access to the equity in their property. Unlike a reverse mortgage, home equity loans and HELOCs require borrowers to make payments. On the other hand, they may incur fewer fees and be a cheaper alternative to refinancing a reverse mortgage. You can take out a home equity loan or HELOC against your second home, or even against your first and second residences.
Whichever option you choose, be sure to follow the residency rules for your first reverse mortgage and plan for the long term. While it can be attractive to take equity out of your properties in the short term, you need to plan carefully to ensure it doesn’t leave you short of cash in the long term.
Can you have two reverse mortgages?
No. Borrowers can only have one existing reverse mortgage at a time. However, borrowers who have paid off a reverse mortgage can obtain another reverse mortgage. And borrowers with an existing reverse mortgage can refinance the reverse mortgage into another.
Should a reverse mortgage be on your primary residence?
Yes. Residency rules for reverse mortgages state that you must spend most of the year in the property on which you have the mortgage. If you’re away for more than six months, your lender could say you’ve broken loan terms and may even start foreclosure proceedings.
Can I use a reverse mortgage to buy a second home?
Yes, but be careful. The fees and interest associated with a reverse mortgage mean you could end up with a lot less money than you invested in your first home. Other ways to access your capital, including a cash refinance or a home equity loan, might make more sense in the long run.
Many snowbirds have the equity in two homes: their primary residence and their vacation home. A reverse mortgage can be a good way to access that equity, but you can only have one at a time. Reverse mortgages can only be taken out on your primary residence, which is where you spend most of the year.
There are, however, other ways to access the equity in your properties. These include a cash refinance or a home equity loan.