Wednesday, November 25, 2009

Reverse Mortgage Basics


A "Reverse Mortgage" allows an older homeowner (62 years of age or older) to use the equity in their home to obtain cash resources when other resources have dwindled or are insufficient, but the home equity has grown.

All of the borrowers must be on title, however, most lenders will accept a living trust (family trust) as the title owner. This arrangement will leave the living trust estate plan undisturbed, an important factor in financing of real estate owned by a living trust (family trust).

A Reverse Mortgage works very much like a line of credit, and because it is a loan, the payments to the borrower(s) are not considered taxable income.

Social Security and Medicare eligibility are not affected by a Reverse Mortgage; and in general, neither are SSI or Medi-Cal, so long as the bank balance is not more than $2,000 for a single person.

The loan is non-recourse, which means that the borrower is not liable for a negative loan balance should the equity of the home go down.

There are no monthly payments on the loan usually, and the repayment of the loan is deferred as long as the borrower(s) live(s) in the home. Also, the loan can be repaid anytime without a prepayment penalty.

If the borrower becomes incapacitated and is out of the home for more than a year, payments cease, and the lender can require payoff.

This is only basic information about Reverse Mortgages. Before entering into a Reverse Mortgage arrangement, it is always advisable to talk to your C.P.A. about taxes and other financial consequences, and also with your Estate Planning Attorney to ensure that your legal objectives remain unaffected by the transaction.

Please visit my website for information on Family Trusts and Estate Planning for more useful information about this and other subjects:

Attorney at Law

This blog is intended for information and educational purposes only and is not a substitute for legal advice from a qualified estate planning attorney in your jurisdiction.

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