Reverse Mortgages in Durango and Southwest Colorado: How They Work and Who They Fit

Many homeowners in Durango, Bayfield, Pagosa Springs and Cortez have spent decades building equity in their homes. A reverse mortgage is one way to use some of that equity in retirement while you keep living in your home. It isn’t right for everyone, so here’s a plain-English look at how it works, what you’re still responsible for, and who it tends to fit.

How a reverse mortgage works

The most common reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration. With a regular mortgage, you pay the lender every month. With a reverse mortgage, you don’t make monthly principal and interest payments. Instead, the loan balance grows over time and is repaid later, usually when the home is sold.

You can take the money in several ways:

• A lump sum at closing
• Monthly payments
• A line of credit you draw from as needed
• A combination of these

Many borrowers use a reverse mortgage to pay off an existing mortgage, which removes that monthly payment.

Who qualifies

For a HECM, you generally need to:

• Be 62 or older
• Live in the home as your primary residence
• Have substantial equity (many borrowers own their home outright or have a small balance left)
• Complete a counseling session with an independent, HUD-approved housing counselor

How much you can receive depends mainly on the age of the youngest borrower, your home’s value, and interest rates at the time.

What you still pay

This is the part that matters most, and the part some ads leave out. With a reverse mortgage you keep ownership of your home, and with it the responsibilities of owning it. You must:

• Pay property taxes
• Keep homeowners insurance in force (including any required hazard or flood coverage)
• Pay HOA dues, if you have them
• Keep the home in good repair
• Live in the home as your primary residence

If you don’t meet these obligations, the loan can become due, and you could lose the home. I’ll walk through these costs with you up front so there are no surprises.

When the loan is repaid

The loan generally becomes due when the last borrower dies, sells the home, or moves out for good. That includes being away more than 12 months in a row for health reasons. At that point the home is usually sold, or your heirs can pay off the loan and keep it.

HECMs are “non-recourse” loans. That means neither you nor your heirs will owe more than the home is worth when the loan is repaid, even if the balance has grown larger than that.

Spouses and heirs

Two conversations are worth having before you apply:

• Your spouse. If your spouse is younger than 62 and not on the loan, ask specifically what happens if you pass away first. The rules for a non-borrowing spouse have conditions, and I’ll explain them for your situation.
• Your children. A reverse mortgage uses equity that might otherwise pass to your heirs. Many families find it helps to include adult children in the conversation. You’re welcome to bring them to our meeting.

Counseling comes first

Before you apply for a HECM, you’ll meet with an independent housing counselor approved by HUD. It’s a required step, and it protects you. The counselor explains the costs, the alternatives and your obligations. I can give you a list of approved counselors.

Buying a home with a reverse mortgage

Moving to Durango to be closer to family, or downsizing to a home with fewer stairs? A HECM can also be used to buy a new primary residence. You bring a down payment, and the reverse mortgage covers the rest, with no monthly principal and interest payment afterward. Ask me whether this fits your plans.

Is a reverse mortgage a good fit for you?

It tends to fit homeowners who:

• Plan to stay in their home for many years
• Want to reduce monthly expenses or add a cash cushion in retirement
• Can comfortably keep paying taxes, insurance and upkeep

It may not fit if you expect to move soon, if you want to leave the home free and clear to your heirs, or if property taxes and insurance would be hard to keep up with. Sometimes a different option works better, such as downsizing, a traditional refinance or a home equity line of credit. I’ll lay the options side by side.

Talk it through with a local broker

I’m Peter Pritchard, a Durango mortgage broker with 28 years of experience. I’ll answer your questions in plain English, with your family in the room if you like, and no pressure. Learn more on our reverse mortgage page, call me at 970-828-1610, or book a time.

This article is general information, not tax, legal or financial advice. Reverse mortgage proceeds are generally not treated as taxable income, but check with your tax advisor about your situation. Borrowers must meet HUD requirements, including occupying the home as a primary residence, paying property taxes and homeowners insurance, and maintaining the home.

Peter Pritchard NMLS #404172 | Animas Mountain Mortgage Inc. NMLS #1742747 | Colorado license CO:100009365 | 1099 Main Ave, Ste 305, Durango, CO 81301 | Equal Housing Opportunity