Reverse Mortgage - And Its Effect on Estate Planning
One of the more popular financial devices available around is the reverse mortgage. Often available for seniors who need a bit of an income boost and who can be classified as "house rich, cash poor", reverse mortgages have been around for a long time-as long as fifty years in the UK and twenty years in the US. In Canada, it has been around for more than ten years and is rising in popularity among senior homeowners. Generally, a reverse mortgage is just what it sounds like. It works like a traditional mortgage, except in reverse. Whereas having a traditional mortgage means paying the lender each month, a reverse mortgage means that the lender pays you through guaranteed monthly payments, a lump sum, or a combination of both. The amount will not be due until the borrower passes away, moves from the residence or sells the home.
The Inextricable Effect of a Reverse Mortgage on Estate Planning To be sure, this type of lending is anything but free money. It is a debt which will have to be repaid once the mentioned conditions are fulfilled. One important downside is how it will affect your estate. Getting a reverse mortgage almost always means a decrease in the equity of your home. When sold, there might not even be any equity left. It bears noting that aside from the principal amount, and there other costs involved, such as the interest fees, the loan origination fee, mortgage insurance fee, title insurance fee, appraisal fee, and other various costs-all of which are considerably higher than a conventional mortgage and can be as high as $30,000 to $40,000. These are costs all tacked to the principal amount of loan, and it's therefore a real possibility to have nothing left in the equity.
Because of this, the government requires several layers of counseling and safeguards. Seniors must be prudent when taking a reverse mortgage: loved ones who will be left behind must be consulted in order to ensure that this is the best option not only for their welfare, but also for the senior homeowners.
Sources: http://www.foreclosurecash.net/ http://ezinearticles.com/?Reverse-Mortgage---And-ItsEffect-on-Estate-Planning&id=8066716