Several of our clients have reverse mortgages or have considered reverse mortgages and have asked what they are and how they work. Reverse mortgages take the equity from your home and convert it to a loan that the lender pays to you. If you are 62 or older, you can qualify for a reverse mortgage and cease paying monthly mortgage payments. So long as you continue to live in your home you do not have to pay the loan back; however, when you pass, move out, or wish to sell your home, the loan becomes due. If you decide the maintenance on your home is too much, the loan becomes due at sale, which means you have no equity to take for rent or purchase of a new place, or money for medical care if the need arises. Another caution for consideration, the home (or its value) cannot be left to heirs as an inheritance. Because the loan comes due at your death, your heirs have to pay off the loan or sell the home to pay back the balance (of the appraised value). Like a normal mortgage, your mortgage can be sold to various companies without your knowledge or approval.
If you are in need of funds and don’t intend on moving out of your home, a reverse mortgage may be a good option for you. If, however, you are looking to leave an inheritance, move to a retirement community, refinance, or keep the home in the family, a reverse mortgage can have unintended negative consequences. A reverse mortgage is not for everyone and due consideration should be given before entering into such a contract. For a better understanding, let’s look at Billy:
Billy is an 82-year-old man who has lived in the same house for the past 45 years. Billy paid off his traditional mortgage in his fifties and secured a reverse mortgage when he was 64. At the time, Billy had no intention of moving and had little saved up, so the reverse mortgage seemed like a great way for Billy to get some much-needed cash. Almost twenty years later, Billy’s health is declining and his family lives too far away to care for him. Billy’s son would like to place Billy in an assisted living facility where he will be around other people his age and have the medical care he needs, but Billy has no money in his checking or savings account, no retirement accounts, and an old beat up pickup truck. The money from the reverse mortgage is mostly spent. If Billy moves out of his home, the reverse mortgage amount he borrowed will become due and any money Billy does have he needs to move into the assisted living facility. Billy can’t afford to move, but neither can he stay. While a reverse mortgage seemed like a good idea at the time, Billy now has no money to care for himself and nothing to leave to his children.
While a reverse mortgage may be a good option for some people, you should consider all planning options before making a decision. Let Grissom Law help you find the estate plan that works best for you to provide care during lifetime and leaves a legacy for your family. Our firm works with families and assets of all sizes. A good plan is never put in place too early. Contact Grissom Law, LLC today at 678-781-9230 to schedule an appointment to discuss your needs.
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