You may hear about the possibility of taking out a reverse mortgage called a home equity conversion mortgage. These loans are potentially available to you once you turn 62 if you have significant equity in your home or own it outright.
With a reverse mortgage you receive payments from the lender rather than paying the lender as you do with a conventional mortgage. But the lender acquires equity (or ownership) in your home in return for the payments.
The loan must be paid back when you either move from the residence or pass away.
Access to some ready cash may be appealing on some level. However, you have to understand the costs associated with reverse mortgages.
With any mortgage you’re going to have interest to pay, and this certainly applies to reverse mortgages. There are also loan servicing fees, appraisal charges, legal expenses, closing costs, and reverse mortgage insurance premiums that must be paid.
Though you are realizing an infusion of liquidity you are paying a premium price for it.
A reverse mortgage in appropriate circumstances may provide much-needed liquidity. On the other hand, from an estate planning perspective, you are choosing to give your children and grandchildren less if you decide to take out a reverse mortgage and utilize the equity that you have built in the home while you are still alive.
It is good to understand all of the options that are available to you as a senior citizen. However, before you make a final decision with regard to a reverse mortgage, it would be a good idea to discuss the effect on your estate with your financial advisor or a licensed and experienced estate planning attorney.
*The Potter Law Firm is an estate planning and elder law firm with offices in Ashland, Kentucky; northern Kentucky; and the Ballantyne area of Charlotte, NC.