The world of finance is intricate and often confusing, especially when it comes to complex products like reverse mortgages. Fortunately, financial experts like Suze Orman are there to guide us. In this article, we’ll delve into Orman’s thoughts on reverse mortgages and their impact on inheritance and estate planning.
Understanding Reverse Mortgages
Before we delve into Orman’s insights, it’s important to have a clear understanding of what reverse mortgages are. A reverse mortgage is a type of loan that allows homeowners aged 62 or older to convert part of their home’s equity into cash. Unlike a conventional mortgage, a reverse mortgage doesn’t require monthly payments. Instead, the loan is repaid when the homeowner sells the house, moves out, or passes away.
Although a reverse mortgage can provide a source of income during retirement, it can also lead to complications when it comes to inheritance and estate planning.
Suze Orman’s Views on Reverse Mortgages
Suze Orman, a renowned financial advisor, author, and television host, is known for her practical and straightforward financial advice. While she acknowledges that reverse mortgages can be a useful tool for some seniors, she also cautions that they aren’t for everyone.
Orman often emphasizes that reverse mortgages should be considered carefully due to their impact on an individual’s estate and potential inheritance. The loan balance of a reverse mortgage increases over time, which can significantly reduce the equity in the home, thereby leaving less for heirs.
Impact on Inheritance
One of Orman’s major points of emphasis when it comes to reverse mortgages is their impact on inheritance. When a homeowner with a reverse mortgage dies, the loan becomes due. At that point, the heirs have several options. When a homeowner with a reverse mortgage dies, the loan becomes due. At that point, the heirs have options. They can repay the loan and keep the house. Alternatively, they can sell the house to repay the loan. Another option is to turn the home over to the lender. The “non-recourse” feature of reverse mortgages means heirs aren’t responsible if the loan balance exceeds the home’s value. Yet, if heirs wish to keep the home, they need to pay off the loan balance. This balance might be higher than the home’s value.
Orman cautions that this situation can lead to potential family conflicts and emotional distress for heirs. Therefore, she advises homeowners considering a reverse mortgage to have open discussions with their family members about their intentions and the potential implications.
Impact on Estate Planning
Orman also discusses the implications of reverse mortgages on estate planning. She points out that while a reverse mortgage can provide a financial boost in retirement, it can also complicate estate plans. The rising loan balance of a reverse mortgage may deplete the homeowner’s equity over time, leaving fewer assets for the estate.
As a part of estate planning, Orman suggests that homeowners should consider their long-term goals, including how important it is for them to leave their home as an inheritance. If preserving the home’s equity for heirs is a priority, a reverse mortgage may not be the best option.
Orman also highlights that homeowners considering a reverse mortgage should consult with an estate planning attorney or a financial advisor. These professionals can provide a comprehensive review of their financial situation and help them understand the potential impact of a reverse mortgage on their estate plan.
Suze Orman’s advice on reverse mortgages underscores the importance of understanding their potential impact on inheritance and estate planning. Homeowners should consider their personal circumstances, their long-term goals, and the potential implications for their heirs. As Orman often states, financial decisions should never be made in a vacuum. It’s crucial to consider all angles, seek professional advice, and engage in open conversations with family members to make informed, prudent financial decisions.