Today, I want to address an aspect of obtaining a reverse mortgage that would seem to be simple, but can actually be quite complex: listing the borrower(s).

Consider that with a conventional mortgage, adding additional borrowers to the loan contract can change the terms, either for better or worse. For example, it could support a higher loan amount (since the lender will factor in the income and assets of the second borrower), but could also lead to a lower interest rate (if the second borrower has extraordinarily bad credit).

With a reverse mortgage, the issue is that the lender will use the age of the youngest borrower when determining the loan amount. [Recall that maximum loan amounts are dictated by the FHA, based on age, home value, and interest rates. All else being equal, the older one is, the more he is entitled to borrow]. Thus, if you are 75 years old and your wife is 62, why not just leave your wife off the loan documents? This way, you can drastically increase the amount that you can borrow, right?

While this is indeed true, consider that doing so will put your spouse in jeopardy. When the last remaining borrower passes away or moves out, the loan will become due. If there is only one borrower listed on the loan, then the loan will naturally become due when that borrower dies, regardless of whether he is survived by a spouse. On the other hand, if the younger spouse is listed as a co-borrower, you will receive less money, but at least the loan will remain outstanding even if one of you passes away.

Another issue: what if the younger spouse is under 62? In this case, you will not be able to obtain a reverse mortgage, even if you were to leave the spouse’s name off of the mortgage. The only solution would be to remove the spouse’s name from the title of the property. Again, consider the ramifications: if you were to pass away, not only would the spouse be forced to vacate the property, but also would lack any legal claim to the property pending the adjudication of your estate.

If you still decide to initially leave the younger spouse (whether under of over the age of 62) off of the loan, bear in mind that you will have to refinance the loan in order to have him/her added. This also holds true for a situation of divorce and/or remarriage. If you are in urgent need of cash, the risk might be justified. Otherwise, it’s probably best to hold off on obtaining a reverse mortgage until all owners of the property (i.e. both spouses) are prepared to be listed as borrowers.

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