You’ve watching your favorite sports event or true crime series when you see a commercial encouraging you to get a reverse mortgage. If you’re near retirement age and own your home, you may consider this type of loan. Read on to learn about reverse mortgages and whether it is a good fit for you for your total New York estate plan.
What is a Reverse Mortgage?
A reverse mortgage is a loan for homeowners that are 62 years old or older. This type of loan allows the senior homeowner to borrow against their home equity, as long as they reside in their home as their primary residence. The loan amount is based on the following:
- The homeowner’s age
- Their financial assessment
- The current interest rates
- The appraised value of the senior’s home
Unlike most mortgages, the reverse mortgage doesn’t require monthly payments. However, you must still pay for property taxes, homeowner insurance, and maintenance. As the homeowner, you also retain title to your home. Deferment of the repayment occurs until the last of the homeowners dies, sells, or moves out of the home.
Those who choose a reverse mortgage may opt to receive the loan funds as a lump sum, a line of credit, a monthly payment, or a combination of these payment options. Because a reverse mortgage is a nonrecourse loan, the homeowner’s estate and heirs aren’t liable for paying the lending institution more than the value of the home when the loan is due.
What are the Benefits of a Reverse Mortgage?
There are several advantages of a reverse mortgage, including the following:
- You can remain in your own home for the rest of life (as long as you pay the property taxes, homeowners’ insurance, and maintenance).
- You can satisfy your need for supplemental income and increased cash flow since it’s tax free.
- You don’t have to make monthly payments to the lending institution.
- You can select the method of loan payments from the lending institution.
What is the Downside to a Reverse Mortgage?
There are several disadvantages of reverse mortgages, including the following:
- You are responsible for paying fees, including those for loan origination, appraisal, third-party counselor, and loan servicing fees, as well as mortgage insurance premiums and closing costs.
- You may have less equity in your home to pass to heirs.
- The loan balance increases over time and interest and fees accumulate.
- The reverse mortgage may negatively affect your eligibility for government benefits (for example, Supplemental Security Income).
Depending on your situation, you might find that a reverse mortgage is the ideal thing. It depends on how you feel about financial independence and how important it is for you to stay in your home. Also, keep in mind your need for supplemental income and cash flow and your comfort level. Another issue as to if it works for you is whether you have children or other heirs that you want to pass equity in the house to.
Considering a Reverse Mortgage? Discuss it with an Experienced Attorney
If you’re thinking about a reverse mortgage, then you want to make sure that you consider all your options. Consulting with and retaining skilled lawyers is crucial if you’re considering this type of loan. MOWK Law has experienced New York estate planning attorneys who can help you with establishing your complete estate plan. We can help you break down the complexities of reverse mortgages and help you decide if it’s the right move for you. Contact us today.