Managing Partner
Taking out a reverse mortgage could be helpful to senior citizens on a fixed income, but it’s important to be aware of some potential downsides, our experts say.
Reverse mortgages will become available to co-op shareholders for the first time—specifically, to shareholders who are 62 or older and use their co-op apartment as their primary residence. (They were recently approved by the New York State legislature and take effect in May.)
Those who qualify should make sure they understand the potential pros and cons of using this product. A reverse mortgage is a type of home loan in which the bank pays the owner a monthly stipend based on the home’s value and the owner continues to live in their apartment.
This can be very helpful to owners on a fixed income, but they should be aware that taking out a reverse mortgage adds onto their existing mortgage and decreases the equity they own in their home.
A reverse cooperative apartment unit loan defaults if the borrower fails to pay all associated fees, including insurance and maintenance fees. Other triggers include failure to pay property taxes, violating cooperative rules, or ceasing to occupy the unit as a primary residence. Lenders may also foreclose if the borrower breaches loan terms.
“Reverse mortgages are unique,” says Andreas E. Christou, an attorney with Woods Lonergan. “They typically involve receiving an up-front payment, a stream of payments, and/or satisfaction of your debts, such as an existing mortgage. And in exchange, the bank will take the property, or in the case of a co-op, the shares, and lease, upon the death of the shareholder, rather than requiring repayment.”