Are you over sixty two years old and looking for a way to split your home equity as part of a divorce? Are you opposed to the idea of selling your home?
Using a reverse mortgage to make the fifty percent equity payment can be a low risk way of taking care of the spouse that will no longer occupy the property. It can also be an alternate solution for those that would have a significant tax hit for liquidating investments to make the payment.
From Two Incomes to One
If you are used to having two incomes in one household, it can be challenging to drop down to one income and take on a mortgage payment. That’s the difference between a conventional refinance loan and a reverse mortgage. Since a reverse mortgage does not require monthly repayment of principal and interest, it can be a great cash flow tool and keep you from being in a tough spot financially.
Divorce Settlement Agreement and Timing
If you are looking into the divorce before the settlement agreement is written up, it would be a good idea to find out how much cash will be available (submit for an estimate here) through a reverse mortgage using an estimated home value. You can then negotiate the terms of the agreement with that amount in mind.
We can only pay off a divorce settlement at closing as a mandatory obligation (a lien essentially) if the divorce is final and has been signed by a judge and recorded. Ideally you’d be pretty far along in the process before applying for the loan. We can wait to close on the judge’s signature if it is not too far off.
Examples of a Divorce Settled by a Reverse Mortgage
Jane & John Doe agree to a divorce. Jane is 62 years old and John is 65 years old. They co-own a $200,000 home free and clear and agree that Jane will retain the home. Jane applies for the reverse mortgage loan and finds out that she will have a gross loan amount, before financed closing costs, of 52.4%. She agrees to pay John his $100,000 and gets to live in the home for the rest of her life. She’ll be responsible for the property taxes and insurance, but won’t have a monthly mortgage payment.
Bill & Sue Smith agree to a divorce. Bill is 65 years old and Sue is 64 years old. They co-own a $200,000 home with a $50,000 debt against it and agree that Bill will retain the home. Bill applies for the reverse mortgage loan and finds out that he will have a gross loan amount, before financed closing costs, of 54.2%. He agrees to pay Sue her $75,000 portion of equity from the home. If his loan amount is $108,400 and he has $3,400 in financed closing costs and $50,000 in mortgage payoffs, he’ll net $55,000 from the reverse mortgage to pay Sue. The remaining $20,000 will be taken out of investment accounts or settled by negotiating for other assets.
Mike & Beverly Jones agree to a divorce. Both Mike and Beverly are 64 years old. They co-own a $200,000 home with $100,000 debt against it and agree that Beverly will retain the home. Beverly applies for the reverse mortgage loan and finds out that she will have a gross loan amount, before financed closing costs, of 53.6%. She agrees to pay Mike his $50,000 portion of equity from the home. If her loan amount is $107,200 and she has $3,500 in financed closing costs and $100,000 in mortgage payoffs, she’ll net $3,700 from the reverse mortgage to pay Mike. The remaining $46,300 will be taken out of investment accounts or settled by negotiating for other assets.
As you can see from the examples above, it is fairly simple to use a reverse mortgage to settle a divorce when one has a free and clear home.
As the debt level rises, the settlement will need to contain asset provisions for the person leaving the residence to be divided 50/50. If the home has greater than 50% debt against it, a reverse mortgage may not be the best tool to divide the home equity, unless the spouse retaining the property is significantly older than the examples above. The loan amounts max out at 75% for a 90+ year old.
Contact us today to learn how a reverse mortgage can help during the proceedings of a divorce.