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Jun 21 2010 12:00AM

Question


Are reverse mortgages a valid vehicle for seniors 62 and older? What are the negatives of reverse mortgages other than loss of home equity?

Answer


“If you are cash strapped and have no heirs, a reverse mortgage may be a viable option,” said FPA member Jennie Fierstein, CFP®, of J. Fierstein Financial Advisors. “By taking on a reverse mortgage, ready cash would be made available to you. However, the value of your estate could be reduced when passing to your heirs. One alternative you may want to consider would be the refinancing of your home.”

According to Fierstein, reverse mortgages generally have higher application fees, points and closing costs, compared to other types of home equity loans. Interest rates are typically higher and the interest credited on a reverse mortgage would not be a deduction for income tax purposes. “Other negatives to consider would be that money from a reverse mortgage could affect Medicaid eligibility, should that become a concern for you,” said Fierstein. “If it is important to leave your house to family members or your children, or have the proceeds go to a charity, then a reverse mortgage might not be the right choice.”

As with most things related to financial planning, you should discuss your situation with a tax adviser and/or attorney before making any final decisions.

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