A home equity conversion mortgage is a reverse mortgage that is fully backed by the United States Department of Housing and Urban Development. To obtain one of these mortgages you must be at least 62 years of age and have significant equity in your home or own the residence outright.
The government wants you to understand exactly what you are getting into when you take out a home equity conversion mortgage. As a result you must undergo a counseling session with an approved counselor before the agreement can be consummated.
It could sound appealing to suddenly start receiving income as a senior citizen who perhaps could use an influx of cash on a regular basis to support an improved quality of life.
However, it is a good idea to take pause and think everything through thoroughly. These loans come with some considerable costs. You have to pay interest, there are closing costs, there will be fees for appraisals and legal assistance, and you must pay loan servicing fees.
Reverse mortgage insurance premiums will also be due.
And then there is the matter of the estate planning implications. It is possible if not likely that your home is your most valuable possession. If you wind up taking out a reverse mortgage you may wind up with very little to pass along to those that you love.
It should also be noted that you must pay the property taxes and keep the property insurance current throughout the duration of the loan. And, you are required to keep the home in good condition.
The loan becomes due at the time of your death or when you choose to move out of the residence voluntarily. When the loan does become due it could be sold to pay the loan balance. Either the borrower or his or her heirs could then keep any remainder that may exist once the loan was satisfied.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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