Massachusetts Estate Planning & Asset Protection Blog

The Reverse Mortgage: Useful Tool for Massachusetts Planning?

Posted by Wellesley Estate Planning Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Mon, Aug 08, 2011

The Basics

Reverse mortgages can be a useful option for homeowners who are in need of cash.  However, most financial experts warn against these and suggest liquidating your portfolio and reducing your living expenses before going this route.  To many they are usually considered a last resort.  This option was introduced in 1989 and allows Americans age 62 and older to access a portion of their home equity without having to move.

Benefits of a Reverse Mortgage

The bank pays the borrower throughout his or her lifetime according to the amount of accumulated home equity. The loan balance does not have to be repaid until the borrower dies, sells the home or permanently moves out.  Because of the nature of the loan, you can never owe more than the value of your home, and if the balance is less than the value of your home at the time of repayment, you or your heirs keep the difference.

To be eligible, the property in question must be your primary residence, and you must either own it outright or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan.  Generally, the older you are and the more valuable your home, the more money you can get.

You may want to check out AARP's calculator which helps retirees figure out how much money they might be eligible to receive.  There are no restrictions for how the money from a reverse mortgage must be used, and the proceeds can be received in a lump sum or some type of monthly payment.

What's the catch?

Reverse mortgages are complex and can affect eligibility for Medicaid and Supplemental Security Income benefits.  The closing costs and interest rates involved are often higher than with a usual mortgage.

Needless to say, if you are spending the equity in your home, you are reducing that value of that asset when it ultimately passes on to your heirs.

For more information on planning for retirement, watch Dennis Sullivan, Esq., CPA, LLM talk about estate and retirement planning on the national talk show, "Ask The Experts."  To learn firsthand how to plan for and protect your assets and life-savings, register online or call 800-964-4295 (24/7) to attend for one of our Trust, Estate & Asset Protection workshops.

Tags: Retirement, Estate Planning, cash, CCRCs, reverse mortgage

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