If you are concerned for your aging parents or relatives as their home becomes too much to manage or too difficult to move about, reverse mortgage may be an option. It is common for adult children to look into the reverse mortgage process for their parents and help them make the right decision. Here are some common questions and concerns you may have.
Questions to ponder:
1. Do I have the financial resources to help my parents with their medical and living expenses?
2. Is there a concern from other siblings as to inheriting the home or the equity?
3. What are my parents’ wishes as to staying home if medical care is needed for an extended time?
Common concerns:
- Will Mom and Dad use up my inheritance?
While tapping into their equity, your parents’ home may be appreciating in value, which could allow for some equity left at the end of the loan. They are also able to live comfortably without having to depend upon family members to support them.
- Will the bank take their home?
No, the bank will not take their home. Throughout the life of the reverse mortgage, your parents will continue to own their home and retain title.
- How much money will they owe when the loan has to be repaid?
Your parents will owe the total amount borrowed, accrued mortgage insurance premiums, accumulated interest, servicing fees, and any other costs and fees financed through the loan amount.
- What happens to the equity if my parents or I decide to repay the loan by selling the house?
There are two options. Either your parents or the heirs can keep the home and pay the balance due on the reverse mortgage, or they can decide to sell the home and use the proceeds to pay off the reverse mortgage. Either way, the remaining equity is retained by the owners or heirs.
- What happens to my mom and dad’s house if they move into a senior care facility?
A reverse mortgage becomes due and payable when the last borrower moves out of his or her home permanently (12 consecutive months). For instance, moving into a senior care facility, selling the home, passing away or moving in with the children.
- What happens if the loan balance becomes greater than the value of the home?
The reverse mortgage (aka: Home Equity Conversion Mortgage or HECM) is a FHA insured non-recourse loan, which means that the borrower can never owe more than what the house is worth. As HECM reverse mortgage borrowers, your parents pay a mortgage insurance premium to the U.S. Department of Housing and Urban Development (HUD). They, in turn, guarantee that the borrower will never owe more than the value of their home when the loan becomes due and payable.
- What are the risks my parents would be taking in receiving a reverse mortgage?
A reverse mortgage doesn’t affect regular Social Security or Medicare benefits. To find out if it impacts other federal or state assistance or medical programs, contact your reverse mortgage lender, tax attorney, or counseling agency.
- Are there restrictions on how my parents spend their money?
Your parents can spend their money any way they want. Borrowers have used reverse mortgages to pay for grandchildren’s educations, vacations, new cars, home improvements or to eliminate debts. The money can be used for anything they desire.
Reverse mortgages are available to senior homeowners 62 and over – even married couples. They will live mortgage payment free, always retain the title to the home, and because these loans are FHA insured, no one – including heirs – will find themselves saddled with the debt after the owner passes. There are also various solutions for adult children or other family members who may want to keep the home in the family.
Jan Jordan is a Reverse Mortgage Specialist serving the Fort Collins, Loveland, Greeley, Longmont, Boulder and other Front Range areas of Colorado, as well as the Cheyenne and Laramie communities of Wyoming. Contact Jan and learn if reverse mortgage is right for you.
