Houston Estate Planning and Elder Law Attorney Blog
If you’ve got a fair amount of equity in your home and no other way to cover a healthcare cost or if the bills are coming in faster than your retirement accounts can manage, it might be time to consider a reverse mortgage.
For retirees in a financial tight spot, a home equity line of credit or borrowing against an existing home equity line of credit can provide a short-term solution. If you are at least 62 with a home that is not heavily mortgaged, a reverse mortgage is another option.
A revere mortgage gives you tax-free cash. No repayments are due, until you die or move out of the house.
However, these loans are expensive. In addition, reverse mortgages aren’t for those people who want to give their home to heirs, because most or all of the home’s equity may be eaten up by the loan principal and interest.
Fed Week’s recent article entitled “Considerations for Borrowing in Retirement” explains that reverse mortgages work best for seniors who need cash, who want to stay in their homes and who have few other options.
These HECM reverse mortgage loans are insured by the Federal Housing Administration (FHA). They let homeowners convert their home equity into cash with no monthly mortgage payments.
After getting a reverse mortgage, borrowers are still required to continue to pay property taxes and insurance. They also must maintain the home, according to FHA guidelines.
People use reverse mortgage loans to pay for home renovations, as well as medical and daily living expenses. Some homeowners who have an existing mortgage will use their reverse mortgage loan to pay off their existing mortgage and get rid of their monthly mortgage payments.
When the homeowner moves, sells the house, or passes away, the loan becomes due. If the house is held until death, heirs have the option to take out a conventional mortgage, pay off the reverse mortgage and continue to live there.
Other options include loans against your life insurance or your securities portfolio.
Before getting involved in a reverse mortgage, sit down with your estate planning attorney and review your situation. There may be some options that you may not be aware of. You may also need to revise your estate plan, especially if you had planned on leaving the family home to your heirs.
Reference: Fed Week (May 16, 2019) “Considerations for Borrowing in Retirement”