Reverse Mortgages: Read the Fine Print

Like almost anything in life, reverse mortgages can be great if utilized correctly and can result in financial chaos if used incorrectly. 

Reverse mortgages are marketed to older Americans as a means for people to have some extra money so that they may live comfortably.  Borrowers must be at least 62 years of age and must live in the home.  With a reverse mortgage, the homeowner always retains title to their property.  However, they may have little to show for it.

The negative to reverse mortgages is that while the borrower most of the time is not required to repay the loan provided they are living and stay in the home, upon death or moving from the home, the lender frequently becomes the virtual owner of the home.

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Usually what happens is that in exchange for giving the borrower money, the lender places a lien on the property.  This allows the lender to be repaid for the loan, fees and interest.  Obviously, this will reduce, sometimes significantly the amount of the inheritance to the heirs of the borrower.  In any event, it is a nonrecourse loan – therefore the lender may not go after the heirs for payment.

As a probate attorney in Culver City, which is just outside of Los Angeles, who handles probates throughout the state of California, I see what happens after someone has passed.  Like anything else, all of the options should be considered before entering into a reverse mortgage.  For some people, it will be the best option.  Others will find that they can do something else and ultimately get a better bang for their buck.  

Consult an unbiased person.  Sometimes an Estate Planning or probate attorney may be helpful.