** This article has been revised from its original version which was published on December…
A reverse mortgage may benefit many people, but is it right for you?
Factors to Consider
- Your desire for financial independence
- Your ability to remain in your own home for the rest of your lives
- Your need for supplemental income/improved cash flow
- Your financial values and attitudes toward loans
- Your interest in maximizing your estate for your heirs
What is a Reverse Mortgage?
A reverse mortgage is a loan for senior homeowners who are age 62 and older which allows them to borrow against their home equity. To be eligible, the senior homeowners must reside in their home as their primary residence. The amount of the loan is based upon their age, their financial assessment, the current interest rates, and the appraised value of their home. Unlike a traditional mortgage, there are no monthly mortgage payments; however, the senior homeowners are still responsible for the payment of property taxes, homeowner insurance, and maintenance. The senior homeowners retain title to their home and the lending institution makes payments to the senior homeowners. The repayment of the loan is deferred until the last of the senior homeowners dies, sells, or moves out of the home.
How Does a Reverse Mortgage Work?
Senior homeowners who obtain a reverse mortgage can select to receive the loan funds as a lump sum, a line of credit, a monthly payment, or a combination of these payment options. Generally, a reverse mortgage is a non-recourse loan which means that the senior homeowner, the senior homeowner’s estate, and heirs are not liable for paying the lending institution more than the value of the home when the loan becomes due.
What are the Advantages of a Reverse Mortgage?
- Senior homeowners can live in and own their home as long as they pay the property taxes, homeowners’ insurance, and maintenance
- Senior homeowners receive the loan as tax-free money which they can use to supplement their income and improve their cash flow
- Senior homeowners do not make monthly payments to the lending institution during the term of the loan
- Senior homeowners, their estate, and heirs are not liable for the amount of the loan which exceeds the value of the home at the time of sale
- Senior homeowners can select the method of loan payment from the lending institution
What are the Disadvantages of a Reverse Mortgage?
- The fees associated with obtaining the loan such as loan origination, appraisal, third-party counselor, and loan servicing fees, mortgage insurance premiums, and closing costs
- The loan balance increases over time and the interest and fees accumulate
- Senior homeowners may have less equity in their home to pass to their heirs
- A reverse mortgage can adversely impact a senior homeowner’s eligibility for government benefits such as Medicaid and Supplemental Security Income
Making a Decision about a Reverse Mortgage
Given the right set of circumstances, a reverse mortgage can be an ideal way to increase the spending power and financial security in retirement for senior homeowners. However, a reverse mortgage may not be the best choice for all senior homeowners.
It is important when considering a reverse mortgage to consult with and retain experienced attorneys. Russo Law Group, P.C., has knowledgeable attorneys who can provide professional services and advise you regarding your overall estate plan. We can help you to understand the complexities of a reverse mortgage which can be confusing and determine whether obtaining a reverse mortgage is right for you.
We invite you to take advantage of our comprehensive website as well as our free seminars and webinars to learn more about how Russo Law Group, P.C. may assist you and provide you with peace of mind.