Parents Can Enjoy a Reverse Mortgage
and Preserve and Estate for Their Heirs
If I tried to tell you that your parents have a home loan at their disposal, which they do not have to pay back---not a single penny---for as long as either of them is alive and remains in their home----and they could still preserve an estate to leave to you---would you believe me? It sounds too good to be true, but this particular home loan, called a Reverse Mortgage, could quite possibly be the heart and soul of an estate plan that would serve to preserve, protect and possibly enhance the estate for their heirs!
What is a Reverse Mortgage-really? It is simply a loan---a special type of home loan that allows homeowners, 62 and older, with substantial equity in their home, to “reverse roles” and let their lenders pay them---tax free money---for as long as they remain in their home. It is a financial tool that has evolved, with the support of the Federal Government, to a safe and highly effective way of providing a way to improve the lives of our senior citizens.
Who should look into a Reverse Mortgage? Any senior, 62 or older, who has earned substantial equity in their home, should look into these loans. Their needs fall into two distinct categories:
The first category is made up of those who do not have heirs for whom they feel compelled to provide an inheritance. If their plans are to remain in the home for five years or more---there is absolutely no reason why they should not get a Reverse Mortgage! There are no costs associated with the loan that must be paid during their lifetime----and the loan itself becomes due and payable only after both borrowers have passed away or have permanently moved out of the home. The house is then sold, and the proceeds of the sale, alone, are used to repay the loan.
The second category is made up of those seniors who do have heirs for whom they intend to provide an inheritance. Because the value of the home is typically at the heart of the value of the entire estate, this group should feel even more compelled to look into the subject of Reverse Mortgages! An experienced Reverse Mortgage Specialist will demonstrate how they can structure a loan that takes advantage of every aspect of a Reverse Mortgage to “time” the draw down of the proceeds, allowing access to a line of credit that grows annually at a guaranteed annual rate---at no cost to them---while at the same time--minimizing the costs associated with the loan, and therefore, maximizing the potential value of the estate.
In both categories, the worst-case scenario is that the owners do decide to move out of the home, in which case, the loan becomes due and payable. In both categories, regardless of how much they have received in proceeds from the loan, the borrowers (or their heirs) cannot ever be required to pay more than what the house is sold for at the time the loan is repaid. In other words, if the home is sold for less than the outstanding balance of the loan, no one will ever be required to pay back that difference! Conversely, if the home is sold for more than the outstanding balance---they (or their heirs) will absolutely receive all of that difference!
One of the myths regarding these loans is that seniors are being pulled into a scenario where they are simply depleting the equity in their home to virtually nothing. This could not be further from the truth. With the proper approach to these loans, seniors should be able to, with the use of a simple amortization chart, see how they can remain in the family home---and look out 5, 10, 15 years or more---and know that they are potentially able to leave more to their heirs---at a later date---than if they sold the home today and handed all of the proceeds over to their heirs!
Additionally, with an experienced specialist, they will learn how to further protect the estate by utilizing the proceeds to:
-purchase long term care insurance, so that they are not ultimately a burden to their heirs;
-purchase life insurance so that the house is not their sole inheritance;
-offload wealth from the estate with gifts of cash, to minimize estate taxes.
Please do not let outdated myths about Reverse Mortgages keep you from helping your parents achieve a greater level of financial independence.
207 South Alfred StreetAlexandria, VA 22314
Phone 703.549.3400 Fax 703.549.5139 Toll Free 800.232.1219