As the financial climate continues to shift, it can be challenging to figure out how you can continue to make ends meet. You also want to enjoy the final years of your retirement.
You may hear some people talking about a reverse mortgage to support themselves. It can seem like a quick and simple way to cash in on your home’s equity while supporting yourself into the future.
Here’s what you should know about how a reverse mortgage could impact your estate plan.
Who can get a reverse mortgage, and how do they work?
Reverse mortgages are not for everyone. A reverse mortgage is limited to those over 62 years old.
With your traditional mortgage, you make monthly payments to lower the balance you owe on your home. A reverse mortgage effectively eliminates your monthly payment, but your total mortgage increases instead of a decreasing balance on your house.
A reverse mortgage is only available to those who are 62 and older because the amount continues to increase until you move out, sell or die.
What if I wanted to include my home in my estate plan?
Including your house in your estate plan can be challenging when you have a reverse mortgage. With a traditional mortgage, the person inheriting your home may need to continue the payments, but it would be a smaller overall burden. Since the balance on a reverse mortgage grows, someone inheriting your house could end up assuming a significant amount of debt.
As your loved ones are settling your affairs, they will have a few options for what they can do with a house with a reverse mortgage, such as:
- Selling the home and repaying the debt
- Returning the title to the lender (especially if the debt became greater than the value of the property)
- Finding a refinancing option to keep the home
If you are considering a reverse mortgage, you should discuss it with your loved ones. Your family may be caught off guard if they are unaware that you have a reverse mortgage when they are trying to settle your estate after you pass away. You should also talk to a skilled professional who can help you determine the impact on your estate plan.