In 1997 Texas law was changed to allow for “reverse mortgages” for persons 62 years or older who either own their own home outright or have a very low balance.
This scheme is a form of a home equity loan that allows a person to borrow against the equity in their home, and still remain in their house without making monthly payments on the loan. Depending on the type of loan, payments by the loan company can be either a lump sum, monthly payments over a period of time, or monthly payments as long as the person lives in the home. The borrower gets paid back when the loan term is up, the borrower leaves the home, either by choice, or passes away, depending on the terms of the loan. When the triggering event occurs, the home is sold and the loan gets paid out of the sale proceeds. Sounds good, but this is no free lunch. The borrower must continue to pay property taxes, insurance, and maintain the house while he/she lives in the house. Failure to comply with these conditions might result in foreclosure. Initiation fees are high, typically $6,000 to $10,000. The loan accrues interest during the life of the loan, and actuaries have done the calculations so that they will lend you less money, plus accrued interest, than what the house will most likely sell for in the future. Most of the time there will be little or nothing left over for you or your heirs after the home is sold.
More information on reverse mortgages may be found at: https://www.debt.org/real-estate/mortgages/reverse/
Contact the Law Office of Elliott Klein, PLLC if you have questions about a reverse mortgage or a home equity loan.