My blogs have been, and always will be, politically neutral. And when changes to government regulations affect what I do, I simply do my best to explain how those changes impact homeowners and my role as a reverse mortgage professional. So, let me be the first to explain how the Supreme Court ruling on marriage may impact reverse mortgages.
I’ll preface by explaining that federally-insured reverse mortgages, often called Home Equity Conversion Mortgages (HECMs), have ALWAYS allowed multiple unrelated occupants to take advantage of, and receive, reverse mortgage proceeds. That has not changed. However, if an older homeowner is now getting married as a result of the court’s decision, then he/she may now have additional advantages and options with a reverse mortgage.
NON-BORROWING SPOUSE PROTECTION
If one spouse has not yet met the qualifying age (62) for a reverse mortgage, that spouse may now have additional protection as a “homeowner” under the non-borrowing spouse guidelines. This protection for spouses began in August of 2014 when guidelines changed, allowing a spouse of a HECM borrower to continue living in the home following the death of the spouse listed on the mortgage. In essence, the loan is not due and payable, and repayment may be deferred. The couple will need to show that they are married at the time of application, continue to be married over the life of the loan, and that both spouses occupy the home.
Until now, non-borrowing spouse protection was limited to a “spouse” as defined by the laws of the state where they reside or the state of their celebration.
HECM TO HECM REFINANCE
If a homeowner already has a reverse mortgage, and is adding someone to title, they can take advantage of the HECM to HECM refinance option. This is where a new reverse mortgage is obtained to pay off an older reverse mortgage. This can be done to increase proceeds, to improve the terms of a mortgage, or in this case, to add a new person to title. As long as one original reverse mortgage borrower is still on title, a spouse can be added with reduced closing costs.
This option already existed for unrelated occupants, but if two individuals are getting married as a result of the recent changes, it is preferable to have BOTH spouses listed on title and on the reverse mortgage. The primary advantage is that either spouse will have access to reverse mortgage funds if the other dies. In addition, reverse mortgages are generally not “due and payable” until the last reverse mortgage borrower dies or permanently vacates the home.
EXPANDED TAX AND TITLE OPTIONS
Reverse mortgage borrowers are sometimes eligible for a mortgage interest deduction on their taxes, if the loan is partially (or fully) paid pack. Same-sex couples have historically had to split up their mortgage interest deduction onto two tax returns. Unfortunately, itemized deductions that get split are often not large enough to exceed the standard deduction. So, for those homeowners where a tax deduction is an option, marriage now allows same-sex couples to file taxes jointly and take the full deduction.
Same-sex marriage will also allow a couple more flexibility in the way they hold title to their home. For example, “tenancy by the entirety” which is available to married couples in some states, is a stronger form of joint ownership. When a spouse dies, property ownership automatically moves to the surviving spouse without having to go through probate. However, it also has added protections against creditors that other forms of ownership do not have.
Keep in mind, this post was not intended to provide tax advice or legal advice. So, please consult a professional for clarification on those issues. However, if you are looking for updated guidance on reverse mortgages, please subscribe to this blog and purchase the book, Understanding Reverse.