Change is needed. Reverse mortgages can serve as financial lifelines by helping seniors leverage their equity without selling their homes. But the private loan industry has shifted in recent years toward encouraging large up-front lump sums rather than smaller lines of credit.

Much about the housing marketing has changed over the last few years, including increased regulation in the banking and loan industries. So far one type of loan, the reverse mortgage, has been relatively unaffected in that time. But changes are on the horizon for this unique lending option.

A reverse mortgage is a special type of home loan that allows homeowners to convert a portion of their home equity into cash. The equity you built up over years of making mortgage payments can be paid to you to supplement your income.

The issue was recently brought up in a Reuters article titled, “Federal clampdown looming on reverse mortgages.”

According to the Department of Housing and Urban Development, reverse mortgages are a safe plan that can help older Americans supplement Social Security, meet unexpected medical expenses, and make home improvements. Unfortunately, riskier loan structures are making reverse mortgages increasingly dangerous. In response, the federal government is planning to take a more conservative approach when evaluating new reverse mortgage loan applications. This means reverse mortgage loans will be harder to acquire in coming months.

For purposes of estate planning, the reverse mortgage is an idea worth exploring. In practice, when your home is no longer used as a primary residence, the cash, interest, and other finance charges from the reverse mortgage loan must be repaid. However, all proceeds beyond such amounts owed on the reverse mortgage belong to your spouse or estate and no debt is passed along to the estate or heirs. This makes the reverse mortgage option an appealing idea for older homeowners who may need supplemental income, but hope to avoid passing on debt to family members.

If you think you may be in need of additional income and have the home equity available, a reverse mortgage may be just the ticket. Seek appropriate counsel to find out if this lending option is right for you and your loved ones.

Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.
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