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After the last borrower passes away, the principal and all interest owing against the home must then be paid in full. It depends on the borrowing agreement, but the payment is sometimes due before the estate is settled. This, coupled with the reduced size of an estate, can pose a hardship for the heirs. All forms of debt carry some risk, but if one of your goals is to leave your children with a monetary legacy, a reverse mortgage could eliminate most of their inheritance.

How to Decide if Downsizing When You’re in Debt Is Worth It

A reverse mortgage can preclude other secured borrowing options

Once a reverse mortgage is registered against the title of your home, you may be unable to use your home to secure any future borrowing. If you’re used to using a home equity line of credit to pay off high-interest card debt, this would be the time to establish a realistic household budget that keeps you living within your means. I also encourage you to anticipate how much money you will need in order to maintain your quality of life over the coming years and as your care needs change. Assisted living and long-term care are expensive and you may be surprised by how much money you will need. A budget, along with an investment plan, will help you anticipate how to cover these future costs.

When you think about borrowing against the equity you have in your home, proceed with caution before you turn what is likely your biggest asset into an ATM. Speak with an accountant, tax specialist, financial adviser or trusted mortgage professional as you consider your options and future needs. It is also important to make your family and executor aware that you are considering a reverse mortgage. Not only is this type of loan important for estate planning purposes, they also need to be aware that they might need to make a significant payment before they’ve sorted out your financial affairs.

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