Your home may be hiding a significant amount of cash that could otherwise be used to pay for such things as household expenses, renovations, travel, or retirement expenses. A Reverse Mortgage allows a homeowner to convert the available equity in the home to cash. The cash from a Reverse Mortgage could also be used to pay for long-term care.

To qualify for a Reverse Mortgage, the homeowner(s) must be at least 62 years old, and must reside in the home. The Reverse Mortgage typically does not have to be repaid until the last homeowner dies, sells the home, or moves out of the home.

With a Reverse Mortgage, the homeowner(s) receives a lump sum of money from the lender. The amount received by the homeowner(s) is based on the value of the home, the age of the homeowner(s), and current interest rates.

For a client in need of quick cash to finance long-term care, a Reverse Mortgage may be a great idea. However, for those clients that wish to pass on their home to their loved ones, it probably will not be. With a Reverse Mortgage, there is no obligation on the homeowner(s) to make monthly payments. Interest on the loan is tacked onto the outstanding balance of the loan. At the time the loan becomes due (e.g., when the last homeowner dies, sells the home, or moves out of the home) the lender gets paid the original amount borrowed plus all of the accrued interest. The potential for exposure is if the house value is out-stripped by the outstanding balance on the loan. However, Reverse Mortgages are non-recourse loans. This means that the homeowner(s) is not responsible for the unpaid balance of the loan if there is not enough value in the home to satisfy the outstanding balance. So, even though the homeowner(s) would not be able to pass the home onto his or her loved ones, the homeowner’s(s’) loved ones are not obligated to make the lender whole.

Disadvantages of the Reverse Mortgage include the possibility that the homeowner will not be able to pass the home onto loved ones; the forced sale of the home in the event the homeowner moves out (e.g., into a nursing home); and the closing costs – which are higher than normal closing costs on conventional mortgages/home equity loans. Reverse Mortgages are usually offered by commercial financial institutions. The typical Reverse Mortgage is offered as a line of credit, but it is not required. This means that the Reverse Mortgage proceeds, although still offered as a lump sum, are instead deposited into the financial institution’s account for the homeowner. When the homeowner needs money from the account, the line of credit dispenses the amount. One of the advantages of this program is that the money is protected, even invested for the homeowner, and the homeowner does not incur interest on the amount borrowed until actually received by him or her. However, one of the disadvantages of this program is that the homeowner does not receive his or her financing right away but has to set up a system with the financial institution whereby the homeowner can make withdrawals from the line of credit account. Plus, because the closing costs are paid out of the loan proceeds, the homeowner already has an amount outstanding from day one. Many times, the homeowner is unaware that he or she is already accruing interest on this amount, especially when the homeowner does not withdraw any money from the line of credit.

Another disadvantage is the treatment of Reverse Mortgages for government benefit purposes. For most Medicaid applicants/recipients, Reverse Mortgages are disregarded as income but countable as a resource if the proceeds from the Reverse Mortgage are kept beyond the month received, but this may be inconsistent with state law. However, if the Reverse Mortgage is in the form of an annuity, then the annuity payments are unearned income in the month received and a resource thereafter.

If you would like to learn more about reverse mortgages, and how the Law Offices of Jeffrey A. Asher, PLLC, can help you, please contact us at (877) 207-6803 or info@asherlawfirm.com.

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About Jeffrey A. Asher

Jeffrey A. Asher is admitted to practice in NY and CT. Mr. Asher is a member of the New York State Bar Association, where he serves on the Executive Committee of the Elder Law and Special Needs Section, the Executive Committee of the Trusts and Estates Law Section, is co-chair of the Legislation Committee of the NYSBA Elder Law and Special Needs Section, is co-chair of the Committee on Elderly and Disabled of the NYSBA Trusts and Estates Law Section, and is Chair of the Elder Law Section of the New York County Lawyers’ Association. Mr. Asher recently appeared in the HBO Documentary “Bobby Fischer Against the World: Fight for the Fischer Estate.” Mr. Asher also is a legal commentator on Trusts and Estates and Elder Law matters for Court TV, TruTV, and CNN Headline News.

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