House Rich But Cash Poor: Reverse Mortgages

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House Rich But Cash Poor: Reverse Mortgages

More than ever, debt is plaguing most Americans. While there are many solutions (and just as many scams) to resolve debt, one tactic is increasingly popular among elderly homeowners: reverse mortgages. If you’re 62 or older, own your home, and meet the necessary qualifications, you can use your house as collateral for a loan.

The benefits of a reverse mortgage are certainly attractive to senior citizens strapped for cash. The borrower receives payments on a regular basis that can be used to supplement income, pay off other debts, or address the medical expenses that come with later life. The loan does not need to be repaid as long as the borrower is still living, using the home as his or her primary residence, and meeting the mortgage’s requirements.

However, similar to concerns we discussed with borrowing from retirement funds, these kinds of financial decisions shouldn’t be taken lightly. Since you’re essentially transforming some of your home’s equity into cash, the value of your property will decrease over time. A reverse mortgage therefore lessens what you can leave for your heirs.

In fact, how a reverse mortgage will affect your children, heirs, and/or beneficiaries should be taken into careful consideration. While you don’t have to worry about paying back the loan, after your death your heirs must pay back the amount plus interest if they want to keep the property. Most reverse mortgages prevent you from ever owing more than the home is worth, but if there is no more equity in the home, that’s one less asset your beneficiaries can inherit after you pass away.

For this reason, it’s important to keep your estate planning in mind if you decide to take out a reverse mortgage. Here at Bellah Perez, we often only talk about loans in the context of debt relief and bankruptcy. However, properly planning your estate is equally important.

Our lawyers are familiar with both debt relief and estate planning. If you already have a reverse mortgage, we can counsel you on how it will fit into your estate plans, doing our best to maximize what your beneficiaries will receive. By contrast, if you’re the beneficiary of a property with a reverse mortgage, our lawyers can help you understand your responsibilities, advising you on whether to pay off the loan or sell the home.

If you have any questions about reverse mortgages, deeds, estate planning or debt relief practices, don’t hesitate to contact us today: (602) 252-9937.

Disclaimer: The answer is intended to be for informational purposes only. It should not be relied on as legal advice, nor construed as a form of attorney-client relationship.

September 1st, 2018|Real Estate|

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Bellah Perez
Bellah Perez provides legal counsel across a broad spectrum of practices. Using a team approach, we work together with our clients to achieve their goals. We earn our clients' trust and cultivate longstanding relationships. It is our mission to make the highly reputable and well regarded law firm available to every client, no matter his/her walk of life. Learn more about Bellah Perez >