Frances B. Granquist
Reverse Mortgages, Frances B. Granquist
Not long ago the reverse mortgage was looked upon as another scheme to defraud the elderly with the added twist of displacing them from their homes. While some early reverse mortgages and unscrupulous lenders did include such provisions, current reverse mortgages are nothing of the sort. Indeed, the reverse mortgage can become an important planning tool for anyone over 62 under certain circumstances.
The essential purpose of a reverse mortgage is to allow a homeowner to borrow against the equity in their own home. Most of us grew up with the idea that the home is our own retirement nest egg. Yet, in practice, the appreciation realized from the many years of homeownership was realized by the children of the homeowner. However, unlike in the past, a large percentage of people 70 years and older are still paying mortgages on their home. Furthermore, retired and elderly homeowners are overwrought by property tax and maintenance costs associated with their home. The reverse mortgage will allow a person to maintain the title and ownership of their home, pay off existing debt including an existing mortgage, supplement their income (in some instances tax-free, check with an accountant) and ultimately, allow a homeowner to use the home as a nest egg for the rest of their life and their spouse’s life as well.
The biggest downside with reverse mortgages is the cost of processing the mortgage. Before all is said and done, typical closing costs on reverse mortgage range from $8-$20,000. Also, the homeowner is using that equity that would otherwise be available for the estate upon the homeowner’s death. So naturally, choosing a reverse mortgage is a personal decision.
Reverse mortgages are a reflection of the times. A generation or two before it would have been unthinkable to borrow against the equity of your home to maintain your lifestyle. However, with people living longer after retirement, the reverse mortgage can be an effective tool to provide them with a comfortable life.
Frances B. Granquist is an attorney with the Pellegrino Law Firm in New Haven.
She is a member of the National Academy of Elder Law Attorrneys.
The Pellegrino Law Firm
475 Whitney Avenue
New Haven, CT 06511