For a senior struggling with their home due to their mortgage being “underwater” — defined as the mortgage balance on a home exceeding its fair market value — a reverse mortgage could present a potentially viable option to unlock a home’s equity compared with other available options. This is according to reporters Ilyce Glink and Samuel J. Tamkin in a newly-published piece at The Washington Post.

“I am a widow in my 70s and my mortgage is underwater. In addition, the house is in need of much repair,” writes a reader who submitted a message seeking financial advice. “Can I just let the bank foreclose and move on? I don’t want to buy again, just rent.”

Sometimes, a mortgage borrower’s appraisal of the value of their home can be imprecise, Glink and Tamkin write, or other factors can affect the value of the home potentially making it worth more than a homeowner may think. A reverse mortgage could make for an option worth exploring given the reader’s stated circumstances, Glink and Tamkin write.

“If you had some equity in the property, you might be able to get a reverse mortgage,” the pair writes. “That allows you to tap the equity to use to fix up your property or pay some bills. It’s more expensive than a mortgage or home equity loan, but you owe nothing until you sell the property or move out of it permanently. It’s an interesting option for homeowners who are 62 and older and are house rich and cash poor.”

However, any step that the homeowner takes should only be made after the property has been accurately appraised by a professional, since the true value of the property is the factor that should ultimately determine what steps to explore.

“Once you understand what the property is worth, you can then determine whether your property is underwater,” Glink and Tamkin write. “For the sake of discussion, we’re going to assume that the property is underwater at this time. Now you have several options. You can try to call your lender and see if they have a program in place to help. Some, not all, lenders will work with borrowers to either refinance the loan at a newer rate or do that and also lower the principal amount owed on the loan.”

Only after viable options are explored should the homeowner consider selling the property, and if it is truly determined to be “underwater” then the additional step of finding a seller to approve a short sale would have to be taken, the pair says.

“Try to understand what your property is worth, then determine what if anything you can do with your lender,” Glink and Tamkin write. “If there’s no loan accommodation possible, then you can then decide to sell the home in a short sale or hand the keys back to the lender and move on with your life.”

Article by Chris Clow on

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