Looking to access your home equity as a senior homeowner? Learn the pros and cons of getting a reverse mortgage in Arizona.
Homeowners seeking financial security in their golden years may find reverse mortgages attractive. And as one of the retiree hubs of the U.S., Arizona has more than its fair share of reverse mortgage promoters.
Ever since Tom Selleck started appearing in a reverse mortgage ad campaign in 2016, telling people that they “can give you the retirement stability you’re looking for,” this financing model has grown in popularity. By 2020, Arizona was among the top five states for reverse mortgage volume.
If you’re considering how to access your home equity without risking your domicile, it’s critical to be aware of the benefits, risks, and alternatives to reverse mortgages. In this guide, we’ll cover everything that Grand Canyon State residents need to know.
Reverse Mortgage Qualifications in Arizona
When you worked with the bank or organization on your first home mortgage loan, they were taking a gamble that you could make the monthly payments. They reviewed your job history, your credit score, and a host of other factors judging your financial responsibility.
This might elicit a sigh of relief: a reverse mortgage does not rely on current income or credit scores. Just as Selleck said, these loans are designed specifically for retirees, and the eligibility requirements reflect that. You can qualify if you:
- Are age 62 or older
- Own your home or own at least 50% of its current equity
- Are you current on any federal debt obligations
- Use your home as your primary residence
So, for those of you looking to get a reverse mortgage with bad credit, you’re in luck as long as you meet the other requirements.
How a Reverse Mortgage Works in Arizona
With your original mortgage, you made payments to the bank, gradually paying off your loan and gaining equity in your home.
A reverse mortgage flips much of the process and nature of the agreement on its head, but it is still a loan. Rather than counting on your ability to make payments, this is a loan where the lender plans to recoup their money all at once when the house is sold (whether the sale is by you, or by them).
The loan can be made to you in any of the following forms:
- A monthly annuity that continues until your death or departure from the house
- A (larger) monthly payment for a set term, often 10 years
- An immediate lump sum
- A line of credit
- A combination of credit plus an annuity, term, or lump-sum payment
Reverse Mortgages Complicate Inheritances in Arizona
Keep in mind that are some specific quirks to reverse mortgages in Arizona.
Most reverse mortgage Arizona issues are related to inheritance. Arizona, along with several other states, provides an option for beneficiary deeds. A beneficiary deed to a house names an heir and allows the property to stay out of probate.
If a beneficiary is named to a property with a reverse mortgage, the loan may prevent the viability of their claim. Upon the borrower’s death, a reverse mortgage must usually be repaid in full at the sale or transfer of the house. This is different from a traditional mortgage, which often allows for an heir to take over monthly traditional mortgage payments.
When there’s a desire to either keep a property in the family or when a spouse or family member is living on the property alongside the borrower, a reverse mortgage can pull the rug out from under them. In most circumstances, the lender will take possession of the home and recoup the loan (and the loan interest) based on the immediate sale of the house.
The Risks of Reverse Mortgages
If you’ve caught news coverage in the past five years, there’s a rise in homeless seniors due to foreclosures. You’ve probably also seen that these were attributed to a rise in reverse mortgages.
Federal regulations aiming to prevent and reduce this outcome have been expanded, but borrowers need to do their homework and approach these loans with caution.
Consider some of these facts about reverse mortgage loans:
- High chance of foreclosure – The reverse mortgage foreclosure rate blows traditional mortgages out of the water. Nearly 20% of reverse mortgage borrowers are at risk of “technical foreclosure,” meaning the borrower finds them non-compliant with their contractual responsibilities: to live in the house, pay taxes and insurance, and keep the house in good condition.
- Changing rules – When market changes make reverse mortgages less profitable, borrowers may be served with notices of foreclosure based on rules they never agreed to. Lenders may change how they check on where the borrower’s living and for how long, how they judge adequate insurance and property upkeep, etc.
- Increasing costs – You may be able to easily budget for property tax and home insurance when you sign a reverse mortgage loan agreement, but what happens five or 10 years down the road? The real estate market can make rapid jumps that significantly increase your home’s tax valuation. It’s not unprecedented for a rapidly appreciating market to be accompanied by rising foreclosures on seniors forced out by a speedy acceleration in property tax.
Ready for a Reverse Mortgage Alternative in Arizona?
If you’ve been working on the American dream for years, then you know your home is both a financial investment and a castle that you’ve carved out over time. And although a reverse mortgage offers the hope of staying in your castle while receiving a payout, it may not be your best option for retirement.
Through a sale-leaseback program, retirees may get the best option. You sell your home and convert your equity to cash, all while still being able to remain a tenant in your home.
Reach out to a financial advisor to learn more.
If you’re looking to access your home equity as a senior homeowner, learn the pros and cons of getting a reverse mortgage in Arizona. If you are still unsure of options for reverse mortgages after reading this article, consult a financial advisor to discuss your options.
- Sixty and me. TOM SELLECK SAYS REVERSE MORTGAGES AREN’T GIVING AWAY THE FARM – DO YOU AGREE? https://sixtyandme.com/tom-selleck-says-reverse-mortgages-arent-giving-away-the-farm-do-you-agree/
- Cision PR Newswire. California Tops List of Most Popular States for Reverse Mortgages According to AAG. https://www.prnewswire.com/news-releases/california-tops-list-of-most-popular-states-for-reverse-mortgages-according-to-aag-301336951.html
- Naples Daily News. Reverse mortgages: 15,000 older Florida homeowners at risk of foreclosure and homelessness. https://www.naplesnews.com/story/news/local/2019/06/12/seniors-florida-lose-homes-reverse-mortgage-foreclosure-thousands-risk-homeless/1192702001/