As your parents age, their needs will inevitably change. And as they change, your need to consider options with them will increase. While these conversations may be the first of their kind, it will also be a chance to offer support. Reverse mortgage could be a viable option to meet everyone’s wishes, especially your parents.
Questions will arise. Here are some brief answers to some of them. For more in depth answers, feel free to contact me.
• Will my parents have monthly loan payments to make?
No, regardless of how they choose to access the funds, no loan repayment is due until the last homeowner has passed away or left the home permanently.
• Will Mom and Dad use up my inheritance?
While tapping into their equity, your parents’ home may be appreciating in value. Any and all remaining equity after the loan is repaid goes directly into the estate. They are also able to live comfortably without having to depend upon family members to support them.
• Will the bank take their home?
Throughout the life of the reverse mortgage, your parents will continue to own their home and retain title. The bank will not take their home as long as they continue to pay property taxes and homeowners insurance.
• How much money will they owe when the loan has to be repaid?
Your parents will owe the total amount borrowed along with any other costs and fees financed through the loan amount.
• How does the loan get repaid?
There are three viable options. Sell their home to repay the lender and collect the proceeds, choose to reimburse the lender directly from a personal account, or refinance the loan.
• What happens to the equity if my parents or I decide to repay the loan by selling the house?
In the event the house is sold, the remaining equity is retained by the owners or their 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. 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 Home Equity Conversion Mortgage (HECM) reverse mortgage is a non-recourse loan, which means that the borrower can never owe more than what the house is worth, even if the loan is more. As HECM borrowers, the Federal Housing Administration (FHA) guarantees 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. In addition the funds from the loan are non-taxable. To find out if it impacts other federal or state assistance or medical programs, talk with your reverse mortgage advisor 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, retirement proceeds, or to eliminate debt. The money can be used for anything they desire. In addition, it can even be used to purchase a new home.
• How can I know my parents aren’t being pressured into a Reverse Mortgage or told false information?
All recipients of a reverse mortgage are required to participate in third-party counseling with a not-for-profit agency that has been approved by HUD. These agencies are not affiliated with lenders and are there to ensure all information is accurate and all questions have been answered.
Sara Cornwall is a local Reverse Mortgage Advisor serving the entire state of Connecticut. Contact Sara and learn if reverse mortgage is right for you.