01 Apr My house gained in value. What happens to my reverse mortgage?

Q. I have a reverse mortgage and I took a lump sum of $17,000. The value of my house has increased quite a bit. How does the value benefit the reverse mortgage company or is the gain in value only mine? I’m a 70 year old fella, the exit sign is coming and I’m leaving the house to my grandchildren.
— Unsure

A. We’re glad you’re asking.

Reverse mortgages can be complicated, so it’s important to understand how it works.

Reverse mortgages were designed to allow seniors to tap equity in their homes, said Jody D’Agostini, a certified financial planner with The Falcon Financial Group in Morristown.

The loan repayment does not occur until the homeowner either sells the home, moves out or dies.

“If you took a loan from your line of credit on the home, the value of the home will be reduced by that, plus the interest that accrues over time,” she said. “When you pass away, the accrued value of the loan plus interest is deducted from the current market value of the home to satisfy the mortgage.”

Then whatever is left over can pass to your grandchildren, she said.

“So, an increasing home value benefits both you and the bank and could allow you to borrow more from the home equity,” D’Agostini said. “If the value of the home is less than the market value, your heirs would not inherit anything.”

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This story was originally published in April 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.