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What is a reverse mortgage, and how does it impact my estate?

A reverse mortgage is a way to obtain a line of equity through your home. To qualify for a reverse mortgage, you must own your home and meet certain financial considerations. Most reverse mortgages create a line of credit on which you can draw—you can choose to draw up to a maximum set by the lender. Other ways to receive money from your reverse mortgage include monthly payments made over your lifetime or a lump sum.

A reverse mortgage can be a good way to tap into the equity of your home to help fund late-life expenses. The money you receive can be used for almost any purpose you desire, including gifting funds to heirs or relatives during your life. The amount of money received depends on factors such as the value of your home, your age, current market status including interest rates, the loan program selected and fees such as settlement costs.

While certain fees and insurance premiums must be paid during the life of the reverse mortgage, you don't have to pay the mortgage back until the home is sold. That fact makes reverse mortgages attractive to seniors who need a little breathing room financially, but a reverse mortgage can impact your estate and your heirs. Most reverse mortgages come due upon the death of the homeowner, which means your children or other heirs are left holding the debt.

Heirs can let the home go and proceeds from the sale are used to pay off the mortgage. However, if you intended to pass a home along to future generations, then another plan needs to be in place regarding paying off any reverse mortgage. As with any estate decision, planning and communication are key to success in the future.

Source: The News and Observer, "Money Matters: Advice for a homeowner considering a reverse mortgage," Holly Nicholson, July 12, 2015

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