Reverse Mortgages: The Bank Pays You

When you are planning for the future it is difficult to impossible to know exactly where you will stand twenty or thirty years down the line. Investments fluctuates, tax laws change, costs rise, expenses vary, and your life span cannot be predicted. The best you can do is make intelligent and informed projections and be fully aware of all of your options. One way to generate some cash flow later in your life is through a reverse mortgage.

This is one of those terms that is largely self explanatory. With a typical standard mortgage you make payments to the mortgage lender and you gain equity in return.

With a reverse mortgage it is the other way around; the bank pays you, in essence buying equity in your home. These payments can be received monthly as an ongoing source of reliable income, in a lump sum, or on an as-needed basis as an open line of credit. The only requirements are that you must indeed own or have significant equity in your home, live in it as your primary place of residence, and be at least 62 years old. These loans can be useful, but they are not a panacea. Of course there is something in it for the lender, and the expenses include interest, origination fees, closing costs, and other fees. However, these costs can be folded into the loan so there are no required out-of-pocket expenses, and if your home was to appreciate that increase in value could offset these expenses.

The loan becomes due and payable at the time of your death or whenever you choose to move from the property voluntarily. You or your surviving family members could sell the house to pay the loan and pocket the difference, but you may also keep the home and pay off the loan using some other funding source if you so choose. Pablo C. Palomino is the Principal and Founder of Legacy, APC – a law firm solely dedicated to the preservation, protection and distribution of Trusts and Estates in San Diego, CA. For more information on reverse mortgages and other estate planning services, visit our website.

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