Reverse Mortgages in Mexico vs. the U.S.
Reverse mortgages have become a popular way for seniors to access some of the equity they have invested in their home: Nearly 43,000 reverse mortgages were issued in the U.S. in 2020.
Seniors with a vacation home in Mexico might be wondering if they can use a reverse mortgage to access its value in the same way. The bad news: there are no reverse mortgages in Mexico. The good news: There is nothing stopping you from using a reverse mortgage in the U.S. to pay for a vacation home in Mexico, as long as you stay within the residency requirements.
- At the moment, you can’t have a reverse mortgage on a property in Mexico.
- There is no reason why you can’t use a U.S. (or Canadian) reverse mortgage to fund vacations in Mexico or even buy property there.
- Make sure that you follow the residency rules for reverse mortgages and explore all the options open to you before taking out a reverse mortgage.
Reverse Mortgages in Mexico
Reverse mortgages are a type of loan that can provide cash for seniors whose net worth is mostly tied up in the value of their homes. A reverse mortgage is a loan for homeowners who are 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, fixed monthly payment, or line of credit. The entire loan balance becomes due and payable when the borrower dies, moves away permanently, or sells the home.
Reverse mortgages have become a small but important part of retirement planning in the U.S. and Canada, but less so elsewhere. The Federal District, the seat of the national government, where Mexico City is located, did pass legislation in 2013 that would allow reverse mortgages to be sold in the country to supplement pensions. However, the language refers to the borrower as the ‘pensioner’ and there is no information to indicate reverse mortgages are universally available.
This may come as bad news for seniors who already have a second home in Mexico and want to use some of this equity to fund their retirement living expenses. However, seniors who own property in the U.S. may be able to take out a reverse mortgage in the U.S., and use the funds to buy a property in Mexico or fund their living expenses there.
If you have a reverse mortgage in the U.S. and a vacation home in Mexico, be careful with the residency rules. You must live in the property you have a reverse mortgage on for more than six months a year. Otherwise, your lender may say you’ve broken your borrowing agreement and demand repayment of your loan.
Using a Reverse Mortgage to Buy a Vacation Home in Mexico
For seniors with property in the U.S., it is possible to use a reverse mortgage to access equity, and then use this money to buy property in Mexico or fund your retirement living expenses there.
There are a couple of important things to be aware of if this route appeals to you:
- First, it’s important to recognize that most reverse mortgage lenders will allow you to access your equity in several different ways: as a lump sum, line of credit, or equal monthly payments. A lump sum could be useful for buying a second home; equal monthly payments might be a good way to fund your living expenses in Mexico.
- Second, beware of the residency rules that govern reverse mortgages. The property you have your reverse mortgage on has to be your “principal residence,” meaning that you live there for the majority of the year. If you are away—at your second home in Mexico, say—for more than six months, your lender has the right to foreclose on your mortgage, and demand that you repay the loan.
- Finally, a reverse mortgage might not be the best way of accessing the equity in your home. Both a cash-out refinance or a home equity loan or a home equity line of credit (HELOC) 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 a reverse mortgage.
As long as you keep these rules in mind, there are many creative ways of using a reverse mortgage to fund retirement in Mexico. Just make sure you plan your finances carefully.
Can I Get a Reverse Mortgage on Property in Mexico?
No. At the moment, reverse mortgages in Mexico are not universally available.
Can I Use a Reverse Mortgage to Live in Mexico?
No, but you can visit. You can use payments from your reverse mortgage as a way to fund vacations in Mexico. However, you will need to live in your U.S. property for more than six months per year in order to have a reverse mortgage on it. If you move permanently to Mexico, you can’t have a reverse mortgage in the U.S.
Can I Use a Reverse Mortgage to Buy Property in Mexico?
Yes. You can use a reverse mortgage to pull a chunk of equity out of your home and invest it in property abroad. A reverse mortgage is not the only way to do this, however, or even the least expensive. Both a cash-out refinance or a home equity loan or a home equity line of credit (HELOC) provide homeowners access to home equity and may be more cost-effective over the long term.
The Bottom Line
At the moment, you can’t have a reverse mortgage on a property in Mexico. However, there is no reason why you can’t use a U.S. (or Canadian) reverse mortgage to fund vacations in Mexico. Just make sure that you follow the residency rules for reverse mortgages, and explore all the options open to you before taking out a reverse mortgage.