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Feb 23, 2024

Understanding Reverse Mortgages


Divorce can be a challenging journey, especially for seniors who must navigate the complexities of dividing assets, including the marital home. The Alpha Center for Divorce Mediation recently hosted a conversation with Barbara Mainhart, Outreach Coordinator, and Jason Eichmiller, a reverse mortgage specialist, to shed light on how reverse mortgages can be a strategic option for seniors undergoing divorce. This article summarizes their insights, offering a clear understanding of reverse mortgages and their applicability in divorce situations.

What is a Reverse Mortgage?

A reverse mortgage is a financial tool that allows homeowners, typically seniors, to borrow against the equity of their home without the immediate obligation to make monthly payments. Jason Eichmiller explains that this option provides flexibility in repayment and can be particularly beneficial for those looking to manage their finances wisely during a divorce.

To be eligible for a reverse mortgage, homeowners must be at least 62 years old, though some options start at 60. The amount one can borrow is based on age and home equity, with seniors in their 60s typically able to borrow about half of their home’s value. The loan accrues interest over time and is due when the homeowner sells the property or passes away.

Reverse Mortgages and Divorce

A common misconception is that the bank ends up owning the home. Eichmiller clarifies that the home goes to the borrower’s heirs, who can then decide how to handle the reverse mortgage, ensuring the property remains within the family if desired.

In divorce scenarios, one spouse may need to buy out the other’s share of the home. A reverse mortgage can provide the necessary funds without requiring the remaining spouse to sell the home or take on a new mortgage, which might be unaffordable on a fixed income. This approach helps preserve the homeowner’s retirement savings and maintain their standard of living.

Key Advantages and Precautions

Divorce often necessitates decisions about the marital home, a significant asset for many couples. For seniors, a reverse mortgage can provide a means to buy out one spouse’s interest in the home without selling it or taking on a new mortgage, which might not be feasible on a fixed income.

Eichmiller emphasizes that reverse mortgages can offer seniors peace of mind by providing a way to manage cash flow and protect their investment portfolios. By leveraging home equity, seniors can avoid depleting their savings or facing increased monthly expenses.

Working with Professionals

The importance of consulting with knowledgeable professionals to navigate the complexities of reverse mortgages in divorce cannot be overstated. Missteps can be difficult to correct, making it crucial to work with experts who understand how to structure these financial tools properly.

Navigating Reverse Mortgages

Reverse mortgages can be a viable option for seniors facing the financial challenges of divorce. By allowing homeowners to tap into their home equity without immediate repayment obligations, reverse mortgages offer a way to manage financial obligations and maintain living standards. As with any financial decision, it’s essential to seek advice from experienced professionals to ensure that this approach aligns with your overall financial strategy and goals.