A federally insured HUD (Housing and Urban Development) Reverse Mortgage allows homeowners age 62 and older to convert their home equity to cash without ever having to make a payment on the loan for the rest of their lives – as long as the home remains the principal residence.
The tax free proceeds of the loan can be used to supplement retirement income, pay for remodeling projects, cover the costs of long-term care, or meet estate planning objectives. It can be used to buy a motorcycle or go to Las Vegas! It’s YOUR MONEY.
Of course, the amount of the loan depends on certain factors, one of them being the amount of equity in your home. Just because you have a second mortgage or home equity loan, doesn’t mean you can’t qualify for the loan. As long as you have sufficient equity, the proceeds of the Reverse Mortgage loan will pay off all your existing mortgages and you can then receive the loan proceeds, money which you are never going to have to pay back. Huh? Not pay back a loan?
How it works:
This is a non-recourse loan. A non-recourse loan is a debt that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. Even if the property value falls below the loan amount, the lender has to absorb the loss when you decide to leave the home or at death. Any remaining equity that might be in the home can be passed on to heirs when the home is sold.
So here’s the catch: You don’t have to pay back the loan, but your children will, if they want to inherit the house. Most of my clients get caught up here; they want to leave the house to the kids. If it’s paid off, all the better. But, some of these same clients can’t afford to really enjoy life – to go out to restaurants, take a vacation, sometimes even eat well at home or purchase all their medicines. Do their kids know this? Sometimes yes, sometimes, no. It’s usually the client who feels pride in being able to pass on the home.
The decision to utilize a reverse mortgage is one of the most important ones affecting retirement and estate plans. I am not a broker and I don’t make any commissions on selling reverse mortgages. I am an attorney, and if you ask me whether I think you should consider a reverse mortgage, I will give you my advise. It’s my job.
Consult the Law Offices of Debra G. Simms for you elder law and estate planning needs. Call us toll free at 1-877-677-1779
