Reverse Mortgages And Estate Planning: A Guide
For many people in Massachusetts, their home equity is among their most important assets. As you age, you may consider looking for options to “tap” that equity. A reverse mortgage is one potential option. There are advantages and disadvantages to using a reverse mortgage. It is crucial that you and your family are able to explore every potential option. Here, our Boston estate planning attorney explains the key things to understand about reverse mortgages.
Reverse Mortgage: Defined
A reverse mortgage is a financial tool that is available for qualifying homeowners. You must be 62 years of age or older to get a reverse mortgage in Massachusetts. The tool allows a homeowner to convert part of the equity in their home into cash—without having to sell their property or take on additional monthly bills.
It is a type of mortgage that is different from traditional home loans because the borrower does not have to make monthly mortgage payments. Instead, the balance of the loan grows. It is not due until the homeowner moves out, sells the property, or passes away. The Consumer Financial Protection Bureau (CFPB) emphasizes that reverse mortgages carry significant risks and that they are not right for every situation.
The Primary Benefit of a Reverse Mortgage: Access Home Equity
The primary benefit of a reverse is a unique method for seniors to increase their income in retirement while continuing to live in their homes. By tapping into home equity, homeowners can supplement their retirement income, cover healthcare expenses, or manage other financial needs.
Two Big Downsides to a Reverse Mortgage
It is important to note that there are disadvantages to using a reverse mortgage as an estate planning tool. Here are two big downsides of reverse mortgages in Massachusetts:
- Origination Costs: Reverse mortgages often come with high upfront costs. There may be origination fees, closing costs, and additional mortgage insurance premiums. In Massachusetts, these fees can be steep. Total costs are usually in the thousands.
- Loss of Equity: Another major downside is that homeowners will lose a significant portion of their home equity. As interest accumulates, the loan balance grows, and equity decreases. In some cases, the homeowner may lose all of their equity.
Alternative Options to a Reverse Mortgage
If you or your loved one needs to access home equity, a reverse mortgage is not the only option. Here are some potential alternative estate planning tools in Massachusetts:
- Home Equity Loan: HELOCs are traditional loans that require monthly payments. However, they come with lower fees and interest rates than reverse mortgages.
- Refinancing: In some cases, refinancing the existing mortgage at a lower interest rate can reduce monthly payments and free up cash.
- Downsizing: Selling the current home and moving to a less expensive property can provide a lump sum of money that can be used for living expenses.
Contact Our Massachusetts Estate Planning Attorney Today
At Fisher Law LLC, our Boston estate planning attorney provides solutions-focused advocacy to aging people and their families. If you have any questions about reverse mortgages and estate planning, we are here to help. Contact our estate planning firm today for a completely confidential initial appointment. Our firm provides legal services throughout the Greater Boston area.
Source:
consumerfinance.gov/ask-cfpb/what-is-a-reverse-mortgage-en-224/
