Getting older often means learning how to navigate a new set of challenges. As your focus shifts from a career to retirement, it can be overwhelming to determine how to make the most of what you have so that you can enjoy your retirement years.
As the cost of living increases, you may start looking at alternative options to support yourself during retirement. One of the current options you could see is the reverse mortgage.
Here’s what you should know about reverse mortgages and their impact on your estate plan.
How does a reverse mortgage work?
Reverse mortgages are for homeowners who are 62 and older. It allows you to exchange the equity you have in your home for cash to supplement your retirement income.
When you utilize a reverse mortgage, you have no monthly payment but you will have an increasing balance over time. While this effectively eliminates your mortgage payment in the short term, it increases the amount you’ll owe when you want to sell your house, move out or pass away.
When can a reverse mortgage be a problem?
A reverse mortgage is not the right solution for everyone. While it can provide some income, it can also create challenges when it is time for your loved ones to settle your estate. Typically, your family will have a few options, such as:
- Refinancing the mortgage so they can keep the house
- Selling the home to repay the debt, leaving them with any remaining equity (if there is any)
- Returning the title to the lender, if the debt is greater than the value of the property
Often, a reverse mortgage causes issues when loved ones had hoped to inherit the property but are surprised that there is more outstanding debt than they could manage.
If you are interested in a reverse mortgage, it is important to talk to both a skilled estate planning professional and your loved ones so you can determine the best solution for your situation.