Reverse Mortgage - Financial/Estate Planning Tool

Senior homeowners looking for additional liquid assets should consider utilizing the benefits of a Reverse Mortgage. These loans were created for all senior homeowners 62+ years old, and are not just for the fiscally desperate. Reverse mortgages are proving to be a very effective tool in the funding of both financial and estate plans for individuals of wealth.

While a home may hold a great deal of emotional value for a family, the reality is that, in most cases, the property is sold after the owner’s death and the assets are liquidated. The heirs are often forced to sell the property under “less than ideal” conditions. After the sale, which may drag on due to the then current conditions of the real estate market, heirs may be faced with inheritance and/or capital gains taxes on the proceeds. In the end, the net proceeds are often far less than the perceived value of the home. Through the use of proceeds from a reverse mortgage to purchase investments or insurance, one can greatly alleviate many of these issues.

A reverse mortgage must be repaid when the borrower permanently leaves the property. At death, the full value of the property would be reduced, for estate valuation for tax purposes, because the accumulated debt of the reverse mortgage would not yet have been repaid, thereby reducing the property value, which should lower any applicable estate taxation.

In addition, accrued interest in the reverse mortgage may be available as a tax deduction upon repayment of the loan (just as mortgage interest is deductible against income when repaid monthly). [NOTE – it is recommended the borrower consult a tax advisor]

When tax-free monies from a reverse mortgage are used for the purpose of funding investment products, it gives homeowners, particularly those with substantial equity built up in their homes, the comfort of having more control over their estate and assuring the legacy they leave retains its value.

If the senior homeowner uses some of the tax-free equity released from a reverse mortgage to purchase additional life insurance for their heirs, the net result would be larger death benefits for the beneficiaries without affecting the current (and many times, limited) income stream of the borrower. When the insurance policy pays the benefits to the heirs, they receive tax-free dollars. Upon the sale of the property, any equity over the reverse mortgage loan amount will be subject to estate taxes, but ultimately, still revert to the heirs. With the unknown nature of the future real estate markets, the use of a reverse mortgage provides for greater control of the legacy assets by the senior homeowner.

A reverse mortgage can offer senior homeowners the ability to strengthen their financial future by utilizing their primary residence as it continues to appreciate.

When a senior homeowner use reverse mortgage funds to purchase investments and insurance that protect their health and well being, and enhance the total worth of their estate, the value of a reverse mortgage is truly realized.

Proceeds from a reverse mortgage can be used to:

- Fund gifts and/or trusts
- Purchase Life Insurance
- Buy Long-term Care Insurance
- Reduce future estate taxes
- Purchase a vacation home or investment property
- strengthen the financial future of a senior homeowner

House Rich, but Short Cash?

Many senior homeowners today are living in highly valued, debt-free homes and yet, are finding it harder each year to remain confident in their financial security. Costs for food, taxes, utility bills, medical services, treatments and prescriptions always seem to be rising, and many seniors, like yourselves, are struggling more and more each year to make ends meet. This is certainly not the retirement life you had hoped for … and it need not stay that way.

You made an investment that has increased in value far beyond anyone’s expectations – your home. Typically, your goal is to leave this asset to your children, and there are some seniors who are compromising their own lifestyle and well being in an attempt to do so. The reality is that you can regain your financial freedom and still leave a substantial legacy, if you understand your options.

There are special lending programs available exclusively to homeowners, age 62 years and older, called reverse mortgages. These programs allow you to tap into a portion of your home value so that you can:

- afford to stay in your community
- maintain your quality of life
- provide for your families’ needs and obligations
- have the ability to strengthen your financial future
- simply rest easier knowing that you have access to a monetary resource if necessary

A reverse mortgage can only be made on a primary residence. You retain full ownership of the property. There are no mandatory monthly repayments for as long as you live in your home (although you can re-pay any portion of the interest or principal at any time with no penalty). If and when you decide to sell, any value in excess of the loan payoff amount belongs to you (In the case of an estate sale, the same is true, with the balance credited to the estate).

The proceeds from a reverse mortgage are tax-free and are not considered income by the IRS (therefore they do not interfere with any entitlement benefits you may be receiving). The funds are available as a lump sum, fixed monthly payments, a line-of-credit, or as any combination of these three options.

The funds can be utilized for - daily living expenses, home improvements and repairs, property taxes and home-owner’s insurance, prescriptions and medical bills, credit cards payoffs, financial and/or estate plans, long-term care Insurance, funding gifts and trusts, vacations, or anything else you desire.

Additionally, a reverse mortgage is the easiest loan for which to apply because, unlike traditional mortgages or home equity loans, there are no income, asset or credit requirements to qualify.

Reverse mortgage programs enable you, as a senior homeowner who may find themselves house rich, but short cash, to utilize some of the excessive appreciation that has accumulated in your home and still leave plenty of assets to your beneficiaries in the future.




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