Reverse Mortgages in Mexico vs. the U.S.

Reverse mortgages have become a popular way for seniors to access some of the equity that they have invested in their home. Nearly 43,000 reverse mortgages were issued in the United States 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: Nothing is 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. 

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 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 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 Mexico’s national government, where Mexico City is located, passed 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 that 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.

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 few important things to be aware of if this route appeals to you:

1. 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, a 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.
2. Second, beware of the residency rules that govern reverse mortgages. The property that 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—say, at your second home in Mexico—for more than six months, then your lender has the right to foreclose on your mortgage and demand that you repay the loan.
3. Finally, a reverse mortgage might not be the best way of accessing the equity in your home. Both a cash-out refinance and 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 that you plan your finances carefully.

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.