Reverse mortgages can provide cash for seniors whose net worth is mostly tied up in the value of their home. A reverse mortgage is a loan for homeowners who are age 62 or older and have considerable home equity. It allows these seniors to borrow money against the value of their home and receive funds as a lump sum, a fixed monthly payment, or a line of credit. The entire loan balance becomes due and payable when the borrower dies, moves away permanently, or sells the home.
Reverse mortgages can be suitable for snowbirds who are also seniors—that is, seniors who migrate from the colder northern parts of North America to warmer southern locales, typically during the winter. Many snowbirds have second homes in the Sun Belt, Hawaii, or Florida, so they have built up equity in two distinct properties. This raises a question: Is it possible to have a reverse mortgage on both?
Unfortunately, the answer is no. In this article, we’ll explain why, and what your alternatives are.
There are three types of reverse mortgages. The most common is the home equity conversion mortgage (HECM). Under this program, the mortgage amount that you may borrow will be the lesser of (1) the appraised value, (2) the Federal Housing Administration (FHA) HECM limit of $970,800, or (3) the sales price (only applicable to HECM for Purchase). If you need to borrow more, you can look into a jumbo reverse mortgage, also called a proprietary reverse mortgage.
- Many snowbirds have equity in two homes: their primary residence and their vacation home.
- A reverse mortgage can be a good way to access this equity, but you can only have one at a time.
- Reverse mortgages can be taken out only on your primary residence, meaning the place where you spend the majority of the year.
- However, there are other ways of accessing the equity in your properties. These include a cash-out refinance or a home equity loan.
Reverse Mortgages for Snowbirds
Many snowbirds choose to buy a second home in their vacation spot of choice, whether in Florida, Hawaii, or somewhere else warm and sunny. They also may have significant equity built up in what has been their primary residence. It’s possible to use a reverse mortgage to access some of this money—providing regular monthly payments, a lump sum, or a line of credit, in exchange for giving away the equity in your home.
However, it’s only possible to have one reverse mortgage at a time. That’s because of the residency rules for reverse mortgages, which state that the property on which you have the reverse mortgage must be your principal residence. In practice, this means that you can’t be away from a property for more than six months and still have a reverse mortgage on it.
This effectively bars snowbirds from taking out a reverse mortgage on their second home if they already have a reverse mortgage on their primary residence. However, if you have a significant amount of equity invested in your second home and want to access it, there are alternative ways of doing that.
If you have a second home and spend a lot of time there, be careful with the residency rules of reverse mortgages. If you are away from your primary residence for more than six months at a time, then your reverse mortgage lender can assume that you are in breach of the lending terms and may even start foreclosure proceedings. Make sure that you keep records, and respond quickly to requests (generally annual) to confirm where you are living.
Accessing Equity for Snowbirds
A reverse mortgage is not the only way to access the equity that you have built up in a property. In fact, reverse mortgages only make sense for a small proportion of senior homeowners. That’s because the high costs associated with reverse mortgages make other forms of borrowing more cost efficient in the long term.
And unlike reverse mortgages, it’s possible to use these alternative sources of borrowing on two properties at once, or to use them just in association with your vacation home. These alternatives include:
- A cash-out refinance. If you’re looking to access a large amount of home equity at once, then a cash-out refinance can help. Doing this will mean that you must make monthly payments to a lender. However, in the long term, you may preserve more of your equity compared with a reverse mortgage, and you can cash out on both of your properties at once if this makes financial sense.
- A home equity loan or a home equity line of credit (HELOC). HELOCs provide homeowners access to home equity. Unlike a reverse mortgage, home equity loans and HELOCs require borrowers to make payments. On the other hand, they may come with fewer fees and can be a less expensive alternative to refinancing a reverse mortgage. You can take out a home equity loan or a HELOC against your second home, or even against both your first and second homes.
Whichever option you take, make sure that you stick within the residency rules for your first reverse mortgage and plan for the long term. While taking equity out of your properties might be attractive in the short term, you should plan carefully to make sure that it doesn’t leave you short of money in the long term.
Can You Have Two Reverse Mortgages?
No. Borrowers can only have one existing reverse mortgage at a time. However, borrowers who have paid off a reverse mortgage can get another reverse mortgage. And borrowers with an existing reverse mortgage can refinance the reverse mortgage to another one.
Does a Reverse Mortgage Have to Be on Your Primary Residence?
Yes. The residency rules for reverse mortgages state that you must spend the majority of the year in the property on which you have the reverse mortgage. If you are away for more than six months, your lender might say that you’ve broken the lending terms and may even start foreclosure proceedings.
Can I Use a Reverse Mortgage to Buy a Second Home?
Yes, but be careful. The fees and interest associated with a reverse mortgage mean that you may end up with a lot less money than you invested in your first home. Other ways of accessing your equity—including a cash-out refinance or a home equity loan—might make more sense in the long term.
The Bottom Line
Many snowbirds have equity in two homes: their primary residence and their vacation home. A reverse mortgage can be a good way to access this equity, but you can only have one at a time. Reverse mortgages can be taken out only on your primary residence, meaning the place where you spend the majority of the year.
There are other ways of accessing the equity in your properties, though. These include a cash-out refinance or a home equity loan.