Estate Planning


You have likely seen several advertisements for reverse mortgages. The concept is a simple one:  as long as you own and live in your home, you can supplement your retirement income with a loan that you do not need to pay off. The trade-off when it comes to a reverse mortgage is that you are using your home’s equity to receive that extra retirement income. Even if a reverse mortgage is right for your circumstances, entering into a reverse mortgage is something that should be understood fully before signing any paperwork.

Reverse Mortgages Explained

How they work: Most reverse mortgages are federally insured and have several requirements including: (1) at least one borrower is aged 62 or older; (2) the home must be the primary residence; (3) the borrower must have financial resources to keep up with the home (taxes, insurance, maintenance); and (4) the borrower must own the home outright or have a low enough “regular” mortgage.

Impact on your estate plan: If you plan on leaving your home to your heirs, understand that a reverse mortgage will reduce the value they receive. Depending on how long the reverse mortgage was in place when you pass away, your home’s equity may have been exhausted — there may be nothing of value to leave your heirs.

Retirement income: The positive trade-off of a reverse mortgage is that you will have an additional source of retirement income, which can be received in several different ways including: (1) an upfront lump-sum, (2) a monthly payout, or (3) a line of credit. Each scenario has its own tax, borrowing costs, and home value implications. If you’re considering a reverse mortgage, talk to your financial advisor and estate planning attorney first, to make sure you select the best payout option for your circumstances.

Buyer beware:  You should also make sure that a reverse mortgage is a good fit for your financial needs before signing any documents. There is likely to be a hefty up-front cost to borrowing.

The Implications of Reverse Mortgages

There are several factors to take into consideration when you are contemplating a reverse mortgage. Specifically, the effect it will have on your estate plan, the type of retirement income you are trying to obtain, and anything unique to your circumstances. There are several questions you should address before deciding whether or not a reverse mortgage is right for you. Will your reverse mortgage exceed your home’s value when you pass away?  What will happen to others living in the home if you die without paying off the loan?

Seek Advice

In addition to shopping around to find a reverse mortgage lender with terms that are most favorable to you, you should also determine whether a reverse mortgage is right for you and your needs. We can help you learn more about the options available to you and your family when it comes to your applying for a reverse mortgage and the impact it will have on your estate plan.

  • Law Office of Kathleen M. Toombs

    157 Barrett Street
    Schenectady, NY 12305
    P: (518) 688-2846
    F: (518) 688-2849

  • Contact Us

  • Wealth Counsel
    Elder Counsel