#29 Saying It Isn’t So About Reverse Mortgages
You’ll Saddle Heirs with Debt
Four years in, you continue to reap the benefits of the saving and planning you’d done in preparation for retirement. With travel restrictions finally beginning to ease, you’ve decided to plan some cross-country family visits and at least one jaunt abroad. To raise the extra discretionary cash, you’ve been exploring the possibility of freeing up equity in your home by applying for a reverse mortgage. You like the idea of having a line of credit to draw on without needing to make decisions as to which investment account to liquidate each time you finance a trip (or concern yourself with generating capital gains tax).
With both your children self sufficient, you don’t anticipate either needing your financial help. On the other hand, as a parent, you’d never want to impose a financial burden on your children. Since you’re hoping to spend the rest of your life in this home, using the equity you’ve built up sounds like a solid plan. But then, an article you read on reverse mortgage loans seemed to imply that, as the interest on a reverse mortgage loan builds over the years, you could end up with your children having to repay your loan for much more than the house itself is worth.
HECMs (Home Equity Conversion Mortgages) were created specifically to allow for retirees like yourself to tap into the equity of their homes to help supplement and enrich their finances. Neither you nor your heirs can be “saddled with debt” by an FHA-approved reverse mortgage, because, at the point at which you depart the home or upon your death, no one can be held liable for any more money than the appraised value of the home at the time. Yes, even if the amount you’ve drawn out of the reverse mortgage line of credit exceeds the value of the home, your children can choose to give back the house to the lender, or keep it by paying 95% of the mortgage balance!
Far from saddling heirs with debt, a reverse mortgage is all about using your own assets to enhance your own retirement lifestyle.
Not intended as tax advice. Please consult a tax specialist