Reverse Mortgages in Puerto Rico, U.S. Virgin Islands, and Guam: What Are the Rules?

Many seniors have retirement homes outside the continental United States, with Puerto Rico, the U.S. Virgin Islands, and Guam being popular choices for vacation homes. As you reach retirement age, you might be thinking about moving permanently to your vacation property in one of these places.

The decision to take out a reverse mortgage also might be an important part of your retirement planning. A reverse mortgage can allow seniors to access the equity in their home—either to fund a one-off purchase or as a reliable and regular source of living expenses in retirement. If this situation sounds familiar, you might be wondering whether you can take out a reverse mortgage on your property in Puerto Rico, the U.S. Virgin Islands, or Guam. 

The short answer is yes. All three places are part of the U.S., so you can get a reverse mortgage just as you would on property in the 50 states. If you plan to retire to the property, however, you will need to pay attention to the residency rules that govern reverse mortgages.

Reverse Mortgages Outside the 50 States

As part of the U.S., all three of the places we are discussing—Puerto Rico, the U.S. Virgin Islands, and Guam—are covered by the U.S. Department of Housing and Urban Development (HUD). This means that it’s possible to take out a federally insured reverse mortgage (otherwise known as a home equity conversion mortgage or HECM) in them, as long as you can find a provider.

This may be an attractive option for many retirees. If you already own a vacation property in one of these places and would like to move there permanently, then taking out a reverse mortgage on the property could provide you with a reliable source of income in retirement. Alternatively, if you own property in the 50 states but want to buy a second home overseas, you can use a reverse mortgage to pull some of the equity out of your home as a lump sum and use this to buy a place in Puerto Rico, the U.S. Virgin Islands, or Guam. 

Both plans are perfectly legal. However, you need to be aware of the residency rules that govern reverse mortgages. To have a reverse mortgage on a property, it needs to be your principal residence, meaning that you spend the majority of the year there. This is why you can’t have two reverse mortgages at the same time.

These rules may affect your overseas retirement planning in a variety of ways:

• If you take out a reverse mortgage on an overseas property, make sure you’ve paid off any reverse mortgage that you have on your house in the 50 states. If you don’t and are away from it for more than six months at a time, then your lender has the right to foreclose on the loan. This could mean that you lose your primary house.
• If you take out a reverse mortgage in the 50 states to pay for your retirement living expenses overseas, you won’t be able to live permanently in your vacation home. This is for the same reason: If you are away from the property on which you have a reverse mortgage for more than six months, you are regarded as having moved houses and are at risk of foreclosure.

As long as you keep these rules in mind, however, there is no reason why a reverse mortgage can’t be a part of your retirement planning—in Puerto Rico, the U.S. Virgin Islands, or Guam.

Reverse Mortgages in Puerto Rico

Puerto Rico is a U.S. territory, and its political status remains a source of tension between the island and the U.S. federal government. However, this confusion doesn’t affect reverse mortgages. Reverse mortgages have been available in Puerto Rico for decades, and they work in exactly the same way as they do in the 50 states. 

That said, there has been a very high rate of foreclosure on reverse mortgages issued on the island over the past five years, and many seniors have lost their homes as a result. HUD has responded by providing homeowners facing foreclosure with resources that can help them understand and mitigate this risk.

Reverse Mortgages in the U.S. Virgin Islands

The situation is similar in the U.S. Virgin Islands. Because the Virgin Islands are a territory of the United States, borrowers are eligible to receive a reverse mortgage through HUD in exactly the same way that residents of the 50 states can, and the same rules apply to these mortgages.

That said, the market for reverse mortgages in the U.S. Virgin Islands is much younger than in other parts of the U.S. This means that while homeowners in the rest of the U.S. have a choice of many reverse mortgage providers, there is just one lender approved to work with borrowers in the U.S. Virgin Islands: All Reverse Mortgage Inc.

Reverse Mortgages in Guam

Getting a reverse mortgage in Guam is the same as in Puerto Rico or the U.S. Virgin Islands. The island has the same political status as Puerto Rico—it is an unincorporated territory of the U.S.—and is thus also covered by HUD.

Reverse mortgages in Guam work in exactly the same way as they do in the rest of the U.S., and the same rules apply.

The Bottom Line

A reverse mortgage can be an effective tool for an overseas retirement, as either a strategy to fund living expenses or a way to buy a vacation home. You can take out a reverse mortgage on property in Puerto Rico, the U.S. Virgin Islands, or Guam. Just make sure that you are aware of the residency rules that apply to reverse mortgages, because breaking them could lead your lender to foreclose on your loan.

Finally, keep in mind that a reverse mortgage might not be the best way of accessing the equity in your home. A cash-out refinance or a home equity loan or 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.