A reverse mortgage may seem like an easy way to receive extra retirement income; however, the ramifications of a reverse mortgage greatly affect your heirs once you pass. Not only does a reverse mortgage increase your debt and leave less assets to your heirs, but it creates a multitude of issues in probate.
A reverse mortgage is an option for individuals who are 62 years of age or older who need additional retirement income or funds. While a reverse mortgage can sound like a tempting offer, reverse mortgages affect your estate plan and may leave behind a mess for your family to deal with in probate. Typically, a reverse mortgage is not a good situation for anyone involved, which is why I always advise against taking out reverse mortgages.
A reverse mortgage acts similar to a mortgage loan but with one key difference: instead of you repaying a loan each month, you get a loan which the lender pays you and the loan is not due right away. A reverse mortgage will take the equity you currently have in your home and pay it out to you, an advanced payment on the equity you already had. With a reverse mortgage, you are able to tap into your home equity you have built up while still living in your home. This is unlike typical situations where you would have to sell your home in order to get the equity back in your pocket.
Typically, you would not pay back the reverse mortgage for as long as you are living in the home. The loan does not come due until you move out, sell your home, or pass away. If you move out of the home or sell the home, you or your spouse would have to pay the loan, but if you pass away, your estate will have to pay off the loan. This creates a host of issues for your estate.
Many issues may arise which would impact your reverse mortgage. If you move out of your home to an assisted living or nursing home, your loan would then come due. Your heirs may decide that they wish to keep the home after they inherit it. However, with a reverse mortgage, he or she may have to sell the home to pay off the loan.
It is important that if you are considering a reverse mortgage, you research, talk to your financial advisor, and speak with your estate planning attorney to see how this affects your estate. If you are being pressured into a reverse mortgage or are not sure all the ramifications which a reverse mortgage would have, walk away. It’s important to be fully prepared when making a decision this big. If you have entered into a reverse mortgage and are uncomfortable with the terms, exercise your right of rescission within three days of closing.
At Sullivan Law, we offer estate planning packages at a flat and reasonable fee. We also offer free consultations to discuss what your needs are, what you would like to do, and how that can be best accomplished. Everyone’s needs are different, and your wishes should be clearly listed and understood.
Call us at 248.917.1351 or email at asullivan@sullivanlawonline.com to schedule your free consultation today. We look forward to working with you!