Thursday, December 18, 2014

Reverse Mortgages and your Heirs


A Reverse mortgage is a financial vehicle that gives older homeowners income by leveraging the equity in their home.  I do not usually like reverse mortgages, for many reasons including the fact that they are burdened with high fees and charges and they allow the elderly homeowner to avoid paying both interest and principal on the loan (which add up quickly, some say exponentially, when it comes time to repay the loan). Because of these reasons, a reverse mortgage should only be used as a last resort so that the elderly homeowner can stay in the home.


Another reason I don't like Reverse Mortgages is the impact on your heirs or beneficiaries after the last mortgage holder dies.  Typically, these reverse mortgages have strict repayment rules after the holder's death.  Companies (under FHA rules) make the loan due on the last mortgage holder's death.  Some may give you time to either pay the mortgage from the estate (if there is money in the estate to pay it), or sell the house.  If you ignore the demand to pay, or can't pay off the loan, the reverse mortgage company may initiate foreclosure proceedings against the home.  Is this really something the personal representative or trustee signed up for?


For all these reasons, including the headaches that follow the death of the elderly homeowner, one should really look twice into whether a reverse mortgage is appropriate for them.