Can You Get a Reverse Mortgage If You Already Have Two Mortgages?

A reverse mortgage can simplify your retirement and cut your living expenses if you have existing mortgages.

A reverse mortgage is a home loan available to seniors at least 62 years of age who own a home with substantial equity. While it is unlikely a homeowner with two mortgages also has substantial equity, it is not impossible. It is the qualification of equity and not existing mortgage situation that qualifies a senior for this loan.

Qualifications

The two chief qualifications for a reverse mortgage are age and home equity. Other qualifications include the condition of the house, which must meet minimum FHA standards, and the absence of federal debt -- the borrower cannot be delinquent on a federal debt, such as taxes. In terms of equity, there is no single quantifiable figure. Rather, a formula that incorporates the applicant's age, home value up to a ceiling of $625,500, and expected interest rate together determine the maximum loan amount. If there are existing mortgages on the property, the loan proceeds or some separate funds must fully repay those mortgages before or at closing.

Options

You can take a reverse mortgage proceeds out as a lump sum, line of credit, monthly payments or some combination of these options. If you have any existing mortgages and do not plan to fully pay them off before the closing, you must take at least part of your loan proceeds to repay these loans. If the maximum loan amount is not enough to pay off the existing loans, and you have no separate funds to pay them off, you will not be allowed to take out the loan.

Online Calculators

To determine how much money you would qualify for in a reverse mortgage, plug in your age and the estimated value of your home into an online reverse mortgage calculator. Some calculators also ask for other information, such as outstanding mortgage balance. The calculator will then present you with the maximum loan amounts for the different type of payments: lump sum, line of credit or monthly payment. The calculator will automatically assume an interest rate consistent with the estimated interest rate being charged for a reverse mortgage at the time.

Pay Off With Outside Funds

If you have enough savings to pay off the two mortgages, you may wonder whether it is better to pay them off on your own and then take out the reverse mortgage or pay them off with the reverse mortgage proceeds and keep your savings. This is a question for your financial adviser. He can analyze the rate of return you are receiving for your existing savings and compare it with both the interest rates on your existing mortgages and expected for your reverse mortgage. With these figures, you will want to consider your monthly costs with and without your existing mortgages. The chief advantage of the reverse mortgage, of course, is that it does not require any mortgage payments while you remain living in the house.

References

• HUD Homes and Communities: Frequently Asked Questions about HUD's Reverse Mortgages
• The Federal Reserve Board; Reversing the Trend: The Recent Expansion of the Reverse Mortgage Market; Hui Shan, 2009 (page 8-10)
• Reverse Mortgage Daily: HUD Extends Higher Reverse Mortgage Loan Limit for 2011; John Yedinak; December 2010
• Reverse Mortgage: Reverse Mortgage Calculator