For many people in Scottsdale, creating an estate plan, the equity in their home is one of their most valuable assets. One option that some retiring individuals may consider is taking out a reverse mortgage on their home. A reverse mortgage is a loan against the equity in your home that is repaid when you no longer live there.

It is different from a regular home equity loan in a number of ways though. You must be at least 62 to qualify, and the loans are regulated and insured by the Housing and Urban Development Department. One advantage had always been understood to be that you or your heirs could never have to repay more than the market value of the home. But after a 2008 'clarification' of rules, some surviving spouses are finding that if they want to stay in the home they have to repay the full value of the loan even if it now exceeds the market value of the house.

A recent article in the New York Times describes an unfortunate situation some widows are facing. If a spouse is not listed on the reverse mortgage they may have to quickly pay off the full value of the reverse mortgage. Those who are unable or unwilling are finding themselves facing foreclosure. This does not apply to a surviving spouse who is listed on the reverse mortgage, they can stay in the house and keep drawing money from the mortgage loan. Surviving spouses who opt to sell the home are also protected from having to pay back more than the market value of the home.

There are several reasons a spouse may have not been listed on a reverse mortgage. Because you must be 62 to qualify, if only one spouse meets the age requirements the other may not be listed, or if one spouse already had a reverse mortgage on a home at the time the couple married. The most likely scenario is that by only one spouse applying they may have been eligible for a larger loan.

It is important to understand the potential effects financial decisions can have one your loved ones after you are gone. Sometimes, in a situation like this, a seemingly unrelated decision to apply for a reverse mortgage under only one spouse can have a huge effect on the financial situation of the surviving spouse.

Source: The New York Times "A Red Flag on Reverse Mortgages" Ron Lieber, March 11, 2011