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Should I get a Reverse Mortgage?

The More You Know: Reverse Mortgages & Estate Planning

Reverse mortgages, in the past, have had a negative reputation. You have likely seen several advertisements for reverse mortgages if you have spent any time watching television or surfing on the internet. A reverse mortgage is a simple concept. As long as you own and live in your home, you can draw from the equity to supplement your retirement income with a loan that you do not need to pay off. The trade-off when it comes to a reverse mortgage is that you are using your home’s equity to receive that extra retirement income. Not all reverse mortgages are bad. However, a reverse mortgage is something that should be understood fully before signing any paperwork.

How does a Reverse Mortgage work?

How they work: Most reverse mortgages are federally insured and have several requirements including: (1) at least one borrower is aged 62 or older; (2) the borrower must live in the home; (3) the borrower must have financial resources to maintain the home (taxes, insurance, maintenance); and (4) the borrower must own the home outright or have low enough debt on the home.

How does a Reverse Mortgage effect your loved ones when you pass away?

If leaving your home to your friends or family is important, a reverse mortgage will reduce the value they receive. Depending on when you pass away and how long the reverse mortgage was in place, your home’s equity may have been eliminated. Therefore, there is no value to leave your heirs. Your heirs may need to pay off or refinance the mortgage to keep the house.

How does a Reverse Mortgage effect my income?

The positive trade-off of a reverse mortgage is that you convert the equity in the home into an additional source of retirement income, which can be received in several different ways including: (1) an upfront lump-sum, (2) a monthly payout, or (3) a line of credit. Each scenario has its own tax, borrowing costs, and home value implications. If you’re considering a reverse mortgage, talk to your financial advisor and estate planning attorney first, to make sure you select the best payout option.

Are there bad Reverse Mortgages?

Yes. It is important to make sure you avoid scams that are pretending to be legitimate reverse mortgages. One way to help avoid being tricked is to make sure you work with a reputable provider. You should also make sure that a reverse mortgage is a good fit for your financial needs before signing any documents. Finally, consider the estate planning impact entering into a reverse mortgage may have on your intended wishes once you are gone.

The Implications of Reverse Mortgages

There are several factors to take into consideration if you are considering a reverse mortgage. Among other considerations, the effect it will have on your estate plan, the type of retirement income you are trying to obtain, scams to watch out for, and anything unique to your circumstances. There are several questions you should address before deciding whether or not a reverse mortgage is right for you. These include:

  • Can the life insurance you have in place pay off your reverse mortgage?
  • Will your reverse mortgage exceed your home’s value when you pass away?
  • What will happen to others living in the home if you die without paying off the loan?
  • Does your family wish to inherit your home?

Seek Advice

In addition to shopping around to find a reverse mortgage lender with terms that are most favorable to you, you should also determine whether a reverse mortgage is right for you and your needs. Alperin Law can help you learn more about the options available to you and your family when it comes to your applying for a reverse mortgage and the impact it will have on your estate plan.

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