Post-retirement financial planning is crucial to ensure your family’s well-being and avoid leaving them burdened with debts after your passing. Some seniors avoid reverse mortgages, fearing negative impacts on their heirs. However, reverse mortgages can be a secure and intelligent option for securing your financial future in your golden years.
When you pass, your legal heirs stated in your will acquire your property. They have around 30 days to decide to buy, sell, or refinance the home. If they choose to sell, lenders usually allow 6 months before repayment is due, providing time for the home to sell. The bank does not take the home after a reverse mortgage, so it remains an asset you can leave to loved ones.
If you’re married, your spouse must agree to the reverse mortgage, though not as an official borrower. This can lead to issues if the borrower passes while others, like a spouse or family, live in the home. After the borrower’s passing, the reverse mortgage reaches maturity and needs repayment. Usually, the home is sold to cover the payment, posing financial challenges for the remaining spouse or loved ones. However, other loan repayment options exist, like refinancing, which can be expensive.
To avoid this problem, ensure that both spouses, if married, become official borrowers on the reverse mortgage loan. When this happens, if one spouse passes, the other will still receive payments and access to funds for the remainder of their life, as long as they continue to meet the terms of the loan.
When going through the stages of life planning, taking into account how your reverse mortgage will impact the assets you leave to your family is important. Below are three ways you can effectively plan your legacy with your reverse mortgage in place.
1. Create a Specific Will and Testament
When using a reverse mortgage, specify your will to ensure your assets are handled as desired after your passing. Without a will, the state may decide your home’s inheritance, causing potential issues for your family. Having a will also takes care of your spouse or family living in the home, guiding them on maintaining their residence.
2. Regularly Update Your Records
Reverse mortgage loans offer advantages, like qualifying for a home interest tax deduction when fully paid off. To qualify, maintain current records showing the funds’ utilization. This deduction can greatly benefit your family’s financial situation.
3. Have Your Family/Heirs Consider a New Mortgage
If your family or heirs wish to keep the home with a reverse mortgage, they can create a new mortgage to cover the remaining balance. Heirs can purchase the property at 95% of its appraised value. To simplify and make it affordable, start the application process soon after the homeowner passes away. The FHA allows for a six-month grace period before payment on the reverse mortgage is due.
Reverse mortgages are a secure financial option for seniors to support retirement needs. Understanding their impact on family and heirs is crucial for effective legacy planning. Incorporating a specific will, updating records, and considering a new mortgage for heirs ensures a smooth asset transition. Seek professional guidance to confidently navigate reverse mortgages and secure your family’s financial well-being.