Financial planning is a big part of estate planning. If you are an older adult who owns a home, you may be considering using a reverse mortgage as part of your estate plan. Whether or not a reverse mortgage is a sensible option depends on many different factors. There are both pros and cons to using a reverse mortgage. In this article, our Cortland estate planning attorney provides a brief overview of the most important things that you should understand about reverse mortgages.
Reverse Mortgage: Understanding the Basics
A reverse mortgage is officially known as a Home Equity Conversion Mortgage (HECM). A reverse mortgage is not free money. It is a loan that is secured by your home. As described by the Consumer Financial Protection Bureau (CFPB), a reverse mortgage is effectively a specialized type of loan that allows homeowners to access the equity in their property. As they access that equity, their loan slowly increases over time—meaning the net value of their interest in their home goes down.
What are the Advantages of a Reverse Mortgage?
Are you considering using a reverse mortgage as part of your financial estate plan in Ohio? You should know the pros. Here are three potential benefits of a reverse mortgage.
- Access to Regular Monthly Income Benefits: A reverse mortgage can be structured to provide the recipient with regular, predictable monthly payments. It can be a useful source of income support for elderly people.
- Reverse Mortgage Payments are Not Taxable: There are special regulations in place for reverse mortgages. You are not required to pay federal or state income on the monthly income (loan) that you receive.
- You Can Remain in Your Home: You do not have to move when you get a reverse mortgage. You get to stay in your home. You are simply pulling the equity of your property by taking out a loan on it.
What are the Disadvantages of a Reverse Mortgage?
There are also downsides to using a reverse mortgage as a financial estate planning strategy. Here are three of the most notable cons to getting a reverse mortgage:
- Fees Can Be High: A major downside to a reverse mortgage is that the fees and interest can really add up. It costs money to get a reverse mortgage and it may not be a cost-effective option over the long run.
- You Will Lose Equity in Your Home: Remember, a reverse mortgage is a way to draw equity out of your home. You do so through a loan. This means that your level of equity goes down each month.
- May Conflict With Medicaid Eligibility: The income from a reverse mortgage could inadvertently undermine Medicaid eligibility for long-term care. It is an issue that should be discussed with an estate planning lawyer.
Speak to a Top Estate Planning Lawyer in Northeast Ohio
At The Law Office of John C. Grundy, our Ohio estate planning lawyer has the professional experience and legal expertise that you can trust. If you have any questions or concerns about reverse mortgage and estate planning, we can help.
Call our Courtland estate planning lawyer at The Law Office of John C. Grundy today for a strictly confidential consultation with a top estate planning legal professional. We provide legal representation throughout Northeast Ohio, including in Trumbull County, Portage County, and Mahoning County.