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Modern Estate Planning Blog

Elder Law & Special Needs Planning

Sacramento Elder Lawyer Warns Against Reverse Mortgages

July 2, 2010

Are you or a loved one considering a reverse mortgage to increase your monthly cash flow?

If so, there are a number of things you should know before deciding this is the right move for you and/or your family.

Essentially a reverse mortgage (also known as a reverse-annuity mortgage or home-equity conversion mortgage) is an arrangement where a homeowner age 62 or older borrows against the equity in her home and receives a regular monthly tax-free payment or lump sum payment from the lender.

Equally appealing is the fact that this “loan” does not have to be paid back until the borrower (equity owner) dies or sells the home.

Yet when this occurs, many people do not realize that the reverse mortgage loan must be repaid in full including interest and other charges that have accrued over the years.

Is this really worth sacrificing the ownership of your home or the cash payout you (or your family) would have received upon the sale of the house? Think about it – the mortgage company, while charging a significant amount of interest, on top of all the up-front fees to establish the loan, practically owns your house. Yet, you are still liable for the taxes, insurance, maintenance, etc…and you will ultimately owe the bank money in the end!

Additionally, there is another important aspect about reverse mortgages which comes as a big surprise to many people.

If you get sick and need long-term care and can no longer live in your house, the loan comes due. That may not be a problem if you sell the home to pay back the loan and then use the proceeds to pay for your care.

But what if Medi-Cal is paying for your care? You qualified because the only asset you owned was your home and you had no other income/savings. But sell that home and now you are over the resource limit. Medi-Cal will no longer pay for you and you’ll need to spend your life savings just to pay for your care.

So while a reverse mortgage may seem like an attractive option for seniors living on a limited or fixed income, these downsides often outweigh the benefits for most people in our community.

However, if you are still considering a reverse mortgage and want to know how it would impact you or your family should something unexpectedly happen, give our Sacramento elder law firm a call and request a Peace of Mind Consultation personally with me ($750 value) free of charge. These sessions are limited to 10 appointments per month so call 916.241.9661 and reserve your spot today!

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