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Reverse mortgages are expected to be an increasing option that baby boomers turn to as they age to cover living expenses, but heirs may get stuck with the final bill, The New York Times reports.
“In the future, more homes passed on to children will come with a bill attached – the balance due on these equity loans,” The New York Times reports.
Reverse mortgages allow home owners 62 and older to borrow money using their home’s equity as collateral, freeing them from monthly mortgage payments. However, interest and monthly insurance premiums are charged throughout the life of the loan with the total balance becoming due when the borrower permanently moves out of the home or dies.
Heirs will have to handle how the loan is repaid, depending on how much equity remains in the house as well as whether they want to keep the home. But when a property changes hands, the first lein holder on the property title must get repaid and heirs have 30 days decide how to repay it. Heirs may have up to six months to sell the home, or arrange financing by getting a separate mortgage to refinance the home and pay off the reverse mortgage. Two, 90-day extensions are often permitted.
But lenders note: The heir will not be required to pay any shortfall if the home fails to sell or if they don’t sell it for enough to pay the full loan amount.
Source: “Retiring on the House,” The New York Times (Feb. 13, 2014)
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