“The HECM is a safe plan that can give older Americans greater financial security,” says Ben Carson, Secretary of the U.S. Department of Housing and Urban Development. In answer to the consumer question “Will we have an estate that we can leave to heirs?”, the HUD website provides the following answer: “When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to heirs. No debt is passed along to the estate of heirs.”
At Geyer Law, we find it important to explain to those contemplating a reverse mortgage that of course a HECM transaction lowers the value of their estate, because they themselves are using part of their assets. The same would be true were they to tap any of their assets other than home equity. Anything you cash in and spend reduces your estate.
Reverse mortgages provide financial solutions for homeowners, including:
- paying off debt
- settling unexpected expenses
- funding long term care insurance
- funding life insurance premiums
- improving current lifestyle
- helping adult children and grandchildren with current needs
- If the borrower doesn’t meet the tax and insurance payments or doesn’t maintain the condition of the home, the loan might need to be repaid earlier, which might impact the heirs.
- Once the owner has died, the heirs have six months to pay off the loan or refinance the home with a conventional mortgage. (If the mortgage balance is less than the value of the home, the heirs will be able to keep that balance.)
by Rebecca W. Geyer