Keeping Consumers Safe: What’s Working In Your Favor?
In the past, when one spouse was below the minimum age requirement of 62, the solution was typically to remove that spouse from the house title. But this created problems when the borrowing spouse passed away, as without sufficient liquidity or refinancing the nonborrowing spouse may be forced to leave their home.
If the nonborrowing spouse was the spouse when the loan was closed, named as a nonborrowing spouse, and continued to occupy the property as a primary residence and maintain the usual taxes, insurance, and home upkeep, the loan balance no longer needs to be paid until after the nonborrowing spouse has also left the home. However, there is no further ability to spend from the line of credit, and any term or tenure payments stop as they are still not considered a borrower. Interest and mortgage-insurance premiums continue to accrue on any outstanding loan balance, as well.
The other safeguard implemented in 2014 and effective in 2015 is a more detailed financial assessment for potential borrowers to ensure that they have sufficient means to pay all of the expenses for the home into retirement. Life expectancy set-asides (LESAs) can now be carved out of the line of credit to cover these expenses so the borrowers do not borrow too much from it.
See Wade Pfau, Keeping Consumers Safe: What’s Working In Your Favor?, Forbes, December 5, 2018.
Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.