5. How does a reverse mortgage effect your estate?
One concern that you as an older adult probably have is how does a reverse mortgage affect your estate? Generally speaking, a reverse mortgage will only affect the amount of your home’s value that will be available to distribute to your heirs. When you sell your home or are no longer occupying it as your primary residence, the proceeds will first be applied to the money that was borrowed, the applicable fees, and the interest from the reverse mortgage. Any money that remains will be yours to do with as you see fit, or it will be added to your estate. However, if the amount that is owed to the reverse mortgage lender exceeds the value of the house, the debt will not be transferred to your estate. (This is a very rare occurrence. A nonrecource clause prevents the total owed at the end of the reverse mortgage to be more than the value of the home.)
6. What to keep in mind
HECM programs allow a homeowner to live in a medial care facility or nursing home for up to 12 months before they are required to repay the loan.
There are many fees associated with reverse mortgages including: origination fees, closing costs, service fees, and interest.
The amount that the homeowner will need to pay back will gradually increase until the loan is paid off.
A reverse mortgage can have either a fixed interest rate or a variable interest rate. Fluctuations in interest rates will impact the final repayment price the sale of your home will have to cover.
Most reverse mortgages will have a "nonrecource clause" which will eliminate the possibility that you will owe more then the home is worth at the end of the reverse mortgage’s life.
You are responsible for property taxes, insurance, and the maintenance of your home throughout the life of the reverse mortgage.
Unlike traditional mortgages, interest charged in a reverse mortgage is not tax deductible until you start paying off the home loan.