Reverse Mortgages in Arizona
Why would a person consider doing a reverse mortgage?
The primary candidate for a reverse mortgage is someone who owns a home and wants to age in place. They are on a fixed income, and their monthly cost of living is exceeding that income. A reverse mortgage can be appropriate for single people and for married people.
What is a mortgage?
When a lender loans you money, you promise to pay it back by signing a promissory note. The problem with just a promissory note is that it is not a very secure way for the bank to get paid if you default in the loan payments. If you fail to pay back the bank, the bank would have to sue you by racing to court to try to get ahead of other creditors who also loaned you money. A mortgage gives the bank the right to satisfy the debt by forcing the sale of your home or other real property.
Why is a mortgage recorded with the County Recorder?
Recording the mortgage with the county recorder puts the world on notice that you have given the bank the right to satisfy your debt by selling your home. Why does the world need to know? Because if you try to borrow money from some other creditor, that other creditor may know that you have pledged your home to satisfy a debt to the bank. The bank feels comfortable about lending you the money, because it knows that it will be paid back, ahead of any other creditor who filed a later mortgage lien.
What is a Deed of Trust?
When a bank or other lender forecloses on a mortgage, they have to file an action in court to do so. A deed of trust is a device similar to a mortgage, except that the lender does not need to go to Court to foreclose. Lenders like deeds of trust because they don't have to go to court to foreclose. Borrowers like deeds of trust because, if they get behind in their payments, all they have to do is bring the payments current. With a mortgage, the lender can require that the entire debt be paid to get the real property out of foreclosure. In Arizona, deeds of trust are much more commonly used than mortgages.
What is a Forward Mortgage
In Arizona, it is usually a promissory note that requires the borrower to make monthly payments of principal and interest until the loan is paid back. It is usually secured by a deed of trust, and not a mortgage.
What is a Reverse Mortgage
These come in two basic varieties. In the first, the lender loans a lump sum of money to a borrower. In the second, the borrower has a line of credit against which he can borrow as needed. In both cases, the borrower signs a promissory note that he will repay the loan. Unlike the "forward mortgage" where the borrower pays the loan back in monthly installments, in this case the borrower does not make monthly loan payments. Instead, the debt is repaid when:
- You die
- Sell the home
- Permanently move out of the home
- Fail to pay your property taxes
- Fail to maintain your property in good repair
- fail to keep your home insured
- Declare bankruptcy
- Donate or abandon your home
- Add a new owner to your home
Under a Reverse Mortgage, who owns my home?
You do. The bank does not own your home. But this means that you must repair your home and pay the property taxes on your home.
What kind of credit do I have to have to take out a reverse mortgage?
There is no credit score like there is with a forward mortgage. You do not have to have an income to show that you can repay the loan. The is because the bank will be repaid when your house is sold after you die or otherwise leave the home?
So what's the hitch?
There is an upper limit to what a bank will lend you on a reverse mortgage. That upper limit generally depends on your age and your home's value. The older you are, the more cash you can get. The more your home is worth, the more cash you can get. To get an idea of how much a bank will lend on a reverse mortgage, given your age and the value of your home, click here.
Is the bank interested in taking my house when I die?
When the loan is over, you or your heirs must repay all of your cash advances plus interest. Reputable lenders don't want your house. They want repayment.
No Endorsement is implied.
What will be the relationship of reverse mortgages to ALTCS/Medicaid planning?
If proposed Medicaid reform legislation passes, a person will be eligible for ALTCS/Medicaid if the equity in their house does not exceed $500,000. The ALTCS/Medicaid rules will permit a person to continue to own the home and to still be Medicaid eligible, when the equity in the home is reduced by taking out a reverse mortgage loan. Such a loan is likely to create countable resources for the homeowner Medicaid applicant. In that situation it is useful to seek the advice of an elder law attorney who does ALTCS Medicaid Planning.
What if I currently have a mortgage payment?
You can replace your existing forward mortgage with a reverse mortgage. You would have to arrange it so that the reverse mortgage is the first mortgage recorded against your property. Usually this means that the reverse mortgage pays off your existing forward mortgage.
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