Divorce is never a fun topic, but it’s a reality for many Americans. Fortunately, many resources now exist for divorcing couples, making the financial transition a more manageable process.
From 1990 to 2021, divorce rates tripled for people ages 65 and older. What’s more, Baby Boomers (people born between 1946 and 1964 ) are currently divorcing at a more rapid rate than any other generation.*
What is commonly known as a “gray divorce” or a “silver divorce” has become much more common. As seniors are entering retirement and experiencing life changes such as divorce, reverse mortgages can be useful for creating a stable financial future.
What is a reverse mortgage?
A reverse mortgage allows homeowners who are over the age of 62 to tap into the equity they’ve built up in their home — through a lump sum, a fixed monthly payment, or a line of credit.
In many ways, a reverse mortgage operates similarly to a conventional mortgage. The biggest difference between the two is that a traditional mortgage requires a monthly payment and a reverse mortgage does not. However, there are many differences between the two loan options. Depending on the homeowner’s unique situation, one will be a better option than the other.
How might a reverse mortgage benefit divorcing seniors?
Reverse mortgages can be helpful for divorcing senior couples in a variety of situations.
For instance, if both spouses want to leave their current home and purchase new homes, they could use reverse mortgages to buy their new properties (assuming they meet all the eligibility criteria).
But let’s say that one spouse wishes to remain in their current home (which still has an unpaid portion of a conventional mortgage) and the other wants to move. In this case, the couple could use a reverse mortgage to pay off the existing mortgage. Then, the spouse who stays would remain in the home without a mortgage payment, and the moving spouse would receive the extra cash.
A scenario: how a reverse mortgage might work in a gray divorce
In the second scenario listed above, the divorcing spouses must come to an agreement on who will stay in the home and who will leave. Here’s an example of how a reverse mortgage could work in favor of both spouses:
- Two divorcing spouses (both age 72) own a home worth $300,000 with $80,000 remaining on the mortgage.
- By taking out a reverse mortgage, the divorcing spouses can pay off the existing mortgage and distribute the remaining cash out.
- One spouse remains on the mortgage and stays in the home, payment free; the other spouse who is moving out, keeps the remaining cash.
- With the remaining cash, the spouse could also use a reverse mortgage to purchase a new home, payment free.
This is just one example, of course. Each scenario is unique, but this illustration gives you an idea of how a reverse mortgage could be beneficial in a senior divorce situation.
What happens if you get remarried in the future?
If you have a reverse mortgage and get remarried one day, your new spouse will not be covered by the reverse mortgage. In other words, they won’t be protected if you pass away or move out.
In this case, it’s often best to refinance the loan to include your new spouse’s name on the mortgage.
Next steps for senior homeowners considering divorce
While divorce is a challenging situation, there are multiple ways that reverse mortgages can help ease the financial burden and set seniors up for stability during their retirement years.
At Waterstone Mortgage, we help seniors explore whether a reverse mortgage is ideal for their current circumstances and long-term goals. Because reverse mortgages are unique, we take the time to answer questions, address concerns, and help our potential clients strategize for the future.
Interested in learning more? Get in touch with a trusted Reverse Mortgage Specialist at Waterstone Mortgage. It’s our goal to help senior citizens create a more financially stable and secure retirement.
*According to AARP, September 2023
These materials are not from HUD or FHA and were not approved by HUD or a government agency.
The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage (HECM), and is only available through a Federal Housing Administration (FHA)-approved lender. Not all reverse mortgages are FHA insured. When the loan is due and payable, some or all of the equity in the property that is the subject of the reverse mortgage no longer belongs to borrowers, who may need to sell the home or otherwise repay the loan with interest from other proceeds. A lender may charge an origination fee, mortgage insurance premium, closing costs and servicing fees (added to the balance of the loan). The balance of the loan grows over time and you are charged interest on the balance. Borrowers are responsible for paying property taxes, homeowner’s insurance, maintenance, and related taxes (which may be substantial). There is no escrow account for disbursements of these payments. A set-aside account can be set up to pay taxes and insurance and may be required in some cases. Borrowers must occupy home as their primary residence and pay for ongoing maintenance; otherwise the loan becomes due and payable. The loan also becomes due and payable (and the property may be subject to a tax lien, other encumbrance, or foreclosure) when the last borrower, or eligible non-borrowing surviving spouse, dies, sells the home, permanently moves out, defaults on taxes, insurance payments, or maintenance, or does not otherwise comply with the loan terms. Interest is not tax-deductible until the loan is partially or fully repaid.
