It is always best to consult with your financial advisor, and maybe even your estate planning attorney when considering a reverse mortgage. They can more definitively help you determine whether a reverse mortgage is right for you, and elaborate on the pros and cons. 

What is a Reverse Mortgage?

A reverse mortgage is essentially a loan for older homeowners who are in need of additional cash. It allows homeowners to borrow against the value of their home, turning their equity into cash. This is useful when someone is “house-rich, money-poor” as they say. If someone needs more liquid assets, they often seek a reverse mortgage to get some cash out of the equity they’ve paid into their home.

The homeowner can continue living in their home as long as they pay property taxes, insurance, and generally maintain the home. Homeowners can receive cash in a lump sum, or as monthly payments, or as a line of credit. They do not have to make monthly payments (like with a traditional mortgage), but instead the loan will be repaid when the homeowner finally sells the house, moves out or passes away.

Who Can Get a Reverse Mortgage?

There are a couple of requirements to secure a reverse mortgage, if you do determine that it is a good option for you.

• You must be age 62 or older. If your spouse is under age 62, you can still get the mortgage, but your spouse will be considered a non-borrower, whose name would not be attached to the reverse mortgage.
• You must have sufficient equity in the property – at least 50% of the property’s value 
• The mortgage must be on your primary residence
• You must attend a required counseling session with someone approved by the U.S. Department of Housing and Urban Development (HUD), to ensure you understand how a reverse mortgage works and what you’re signing up for.

When Might it be a Good Option?

If your retirement savings or retirement income are insufficient to cover living expenses, a reverse mortgage can provide or make up for this missing cash flow. As people age, they generally face increased healthcare needs, leading to higher medical expenses. Long-term care is particularly costly, and even routine medical care can quickly become expensive.

Some older Americans want to improve their property in their older age, to make it easier to get around, or even just for resale value. A reverse mortgage may serve as a loan to help fund these improvements. Still another reason could be emergency expenses like large medical bills, a new vehicle, or other unanticipated event. 

A reverse mortgage can be a valuable financial tool for older adults facing rising living costs, where retirement savings are insufficient. By converting home equity into cash, it offers flexibility to address various needs, from healthcare expenses to home improvements. Consult with a financial advisor and/or your estate planning attorney to ensure it aligns with your financial and estate planning goals.

The post How to Cash in on Your Home (Without Moving Out)! appeared first on Desert Law Group | Kimberly T. Lee.

Reverse Mortgage (Photo credit: aag_photos)

But some of the plan is backfiring on the children of the borrowers. They are finding out that their inheritances are gone, according to an article in the New York Times.

Under the law, children of reverse mortgage borrowers are supposed to be offered the option of settling the loan for a percentage of the full amount. But some reverse mortgage lenders are threatening to foreclose on the home unless the amount is paid in full, the article says.

Some companies are moving to foreclose just weeks after the homeowners die. And the companies aren’t telling the children that they have the option of settling for less than the full amount.

In one case cited in the article, the children were supposed to have been offered the opportunity to settle for 95 percent of the home’s current value, with any shortfall if the home sells for less than the debt amount to be made up by a federal insurance fund, which the reverse mortgage borrowers pay into every month. But the company did not provide the information to the children.

It is important for seniors to weigh the advantages and disadvantages of a reverse mortgage strategy before making the decision. It is also important for the heirs understand their legal rights.

The post Beware of Reverse Mortgage Pitfalls appeared first on Desert Law Group | Kimberly T. Lee.