Widows and Widowers Watch Out: Reverse Mortgage Loans - New York Estate Planning News

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Widows and Widowers Watch Out: Reverse Mortgage Loans

As the year draws to a close, looking back we find that there was some good news in the area of reverse mortgage loans in 2011, reports the New York Times.

Specifically, the surviving spouses of reverse mortgage loan holders were being put on the hook for the loan even if they weren’t a party to the original loan or listed on the papers. But after pressure from some lawsuits from the AARP Foundation, the Department of Housing and Urban Development backed off from its policy.

For those that aren't exactly clear about reverse mortgages here is a little primer:

In a "regular" mortgage, you make monthly payments to the lender. But in a "reverse" mortgage, you receive money from the lender and generally don't have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence. Reverse mortgages can help homeowners whose assets are mostly tied up in their houses stay in their homes and still meet their financial obligations.

To qualify for most reverse mortgages, you must be at least 62 and live in your home. The proceeds of a reverse mortgage (without other features, like an annuity) are generally tax-free, and many reverse mortgages have no income restrictions.

Whether seeking money to finance a home improvement, pay off a current mortgage, supplement their retirement income, or pay for healthcare expenses, many older Americans are turning to "reverse" mortgages. They allow older homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.

But while reverse mortgages are useful, they can also leave your surviving spouse in a tough situation. If you are considering a reverse mortgage loan in 2011 you should definitely inform your estate planning attorney so he or she can counsel you regarding the impact it may have on your surviving spouse.

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