Question: My husband and I are approaching retirement in good health.  We own our home outright and have some money saved.  However, we fear our savings will run out if we live for more than 20 more years.  Is a reverse mortgage right for us?

Answer: A “reverse” mortgage is a loan secured by your home, which you don’t have to pay back until you die, sell your home, or permanently move.  Available to people 62 years of age or older, reverse mortgage offer an alternative to elderly individuals who have not properly planned for retirement.  Sponsored by the federal government, and administered by various mortgage companies, reverse mortgages operate different from traditional “forward” mortgages

When you paid back your previous mortgage loan, every month your debt decreased; while your home equity increased.  After your final payment, you owned your home outright.  But with a reverse mortgage, you are converting your home equity into cash, and are not required to make any payments.   Interest costs accrue while you own your home and are added to the payoff amount.  Thus, with a reverse mortgage your debt increases over time, while your home equity decreases.

According to the AARP, “the amount of cash you can get from a reverse mortgage depends on your age, your home’s value and location.”   An older applicant can get more cash, due to the greater likelihood they will die sooner which results in less interest accruing over time.

Most individuals’ biggest fear is losing their home, either due to nursing home cost recovery, or to a reverse mortgage lender.  If passing your home onto your kids is a priority, a reverse mortgage provides risk.  Over time, your loan payoff balance may grow larger than the home’s value, resulting in the disappearance of your home from your estate.  Like the bumper sticker says, you may be “spending your kids’ inheritance”.

Before determining if a reverse mortgage program is right for you, you will be required to meet with an FHA approved non-profit counselor.  Here, you will gain further insight into the benefits and risks.

Billerica Attorney, James Haroutunian, specializes in Real Estate Law and Estate Planning.  Contact him with questions at 630 Boston Road, Billerica, by phone at 978-671-0711, online at hlawoffice.com, prioritylaw.com or by email at james@hlawoffice.com.

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