Reverse Mortgages – will they impact my Estate?
In short, the answer is yes.
Reverse Mortgages, however, can be a fantastic option for older persons needing a cash loan. Reverse Mortgages have the benefit of no requirement for regular repayments like a standard bank or financing company loan. The Reverse Mortgage is borrowed against the equity in your home, and repayment of the loan, plus interest, is paid when either you pass away, or you sell your home.
Reverse Mortgages are often used by older persons for home maintenance or repairs, new vehicles and payment of debts and mortgages. However, there is no criteria for what the funds are required for.
One of the most important considerations when getting a Reverse Mortgage over your home is the impact it will have on your Estate, which is why there is a requirement to obtain independent legal advice before going ahead.
As the Reverse Mortgage is borrowed against the equity in your home, your Estate and your beneficiaries will receive less when you pass away, and your home is sold. Factors which determine how much equity will be taken out of your home are the value of your home at the time of sale, the amount of your loan, and the interest rate on the loan. If your house value increases over the time of your loan, you will of course lose less equity, however this is always a risk as house prices can also drop. Some lenders do offer an “Equity Protection Option” which allows the borrower to protect a certain percentage of the equity in their property. We always encourage clients to discuss Reverse Mortgages with their families due to the impact on Estates. We sometimes find that families step in and assist their loved ones with a gift or loan so that they do not need to go ahead with a Reverse Mortgage.
Reverse Mortgages can be a useful tool to enable older persons to get cash in the bank, however the implications on Estates needs to be carefully considered. If you are looking for legal advice or further information on a Reverse Mortgage, please do not hesitate to get in contact with the Elder Law Team at Pier Law.