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  • Home
  • About Us
    • Gratia Schoemakers
      • Community Outreach Program
    • Testimonials
  • Virtual Services
  • Estate Planning
    • Estate Planning Basics
    • Last Will and Testament
    • Revocable Living Trusts
    • Durable Power of Attorney
    • Medical Power of Attorney
    • Living Will
    • Family Estate Planning
    • LGBTQ Estate Planning & Asset Protection
    • Kids Safety Plan™
    • Business Succession Planning
    • Guardianship
      • Guardianship Planning
    • Special Needs Planning
    • Legacy Preservation Planning
    • Asset Protection
    • Trusts
    • Pet Trusts
    • Gun Trusts
  • Probate
    • Texas Probate Guide
    • Probate of a Will
    • Texas Affidavit of Heirship
    • Texas Small Estate Affidavit
    • Texas Heirship Determination
    • Texas Muniment of Title
    • Trust Administration
  • Family Law
    • Divorce
    • Collaborative Divorce
    • Mediation
    • Custody / Visitation
  • Blog
  • FAQs
    • FAQs – Videos
    • FAQs – Estate Planning
    • FAQs – Beyond Money in Estate Planning
    • FAQs – Divorce and Estate Planning FAQs and Myths
    • FAQs – Estate Planning for Newlyweds Myths and FAQs
    • FAQs – Estate Planning for Young Adults
    • FAQs – The Estate Planning Cast of Characters
    • FAQs – Expecting an Inheritance
    • FAQs – Myths and FAQs – Planning for Conflict Prone Families
    • FAQs – New and Expanding Families
    • FAQs – Pet Trusts
    • FAQs – Probate
    • FAQs – Standalone Retirement Trust Myths and FAQs
    • FAQs – Trust Modifications
    • FAQs – Unwinding Obsolete Planning
    • FAQs – Why You Want to Avoid Probate
    • FAQs – Year-End Planning Myths and FAQs
  • Contact
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The More You Know: Reverse Mortgages & Estate Planning

May 21, 2019 By Gratia P. Schoemakers, Esq.

You have likely seen several advertisements for reverse mortgages if you have spent any time watching television or surfing on the internet. The concept and sell is a simple one: as long as you own and live in your home, you can 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. Even if a reverse mortgage is right for your circumstances, entering into a reverse mortgage is something that should be understood fully before signing any paperwork.

Reverse Mortgages Explained

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 home must be the primary residence; (3) the borrower must have financial resources to keep up with the home (taxes, insurance, maintenance); and (4) the borrower must own the home outright or have a low enough “regular” mortgage.

Impact on your estate plan: If you plan on leaving your home to your heirs, understand that 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 exhausted meaning that there is nothing of value to leave your heirs. In that case, your heirs may need to pay off or refinance the mortgage to keep the house.

Retirement income: The positive trade-off of a reverse mortgage is that you will have 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 for your circumstances.

Buyer beware: 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 when you are contemplating a reverse mortgage. Specifically, 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?

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. We 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.

Call or contact us today, we are here to help.

Filed Under: Estate Planning, Home/Property Ownership, Retirement Tagged With: Insurance, Life Insurance, Mortgage

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