Should My Parents Get a Reverse Mortgage?

If you are searching for ways to make your parents’ retirement more enjoyable and secure, a reverse mortgage may be able to provide the funds they need to supplement their income and live comfortably.

What Is a Reverse Mortgage?

A reverse mortgage allows homeowners to exchange some of their home’s equity for spendable cash. If your parents have most of their wealth tied up in their equity, a reverse mortgage will give them access to it so they can finance their retirement. The loan is only due once your parents leave the house, providing freedom and flexibility in how to spend income.

Your parents will receive payments from their lender instead of making payments to them. They can choose to receive the funds in a lump sum, a fixed monthly payment system, a line of credit or a combination of the three.

Two types of reverse mortgages include:

  • Home Equity Conversion Mortgage (HECM): HECM reverse mortgages are popular due to their federal backing by the Federal Housing Administration (FHA). They provide an extra layer of security and protection for homeowners over the age of 62. Learn the pros and cons of a HECM.
  • Proprietary reverse mortgage: This type of loan is offered through a private company, so it does not have backing from the federal government. They provide a bit more flexibility, allowing homeowners to qualify as early as 55 years old.

What Are the Benefits for Seniors Who Get a Reverse Mortgage?

Reverse mortgages are nonrecourse loans, meaning the borrower is only liable for the collateral attached to the loan. This low-risk financing solution will protect your parents and enable them to enjoy their retirement with financial peace of mind.

Retired adults can spend more time doing the things they love with family as the reverse mortgage covers expenses such as:

  • Medical bills
  • Monthly expenses
  • Home improvements
  • Long-term care
  • Credit card debt
  • Utilities and groceries

As long as your parents live in the house as their primary residence, continue to pay taxes and maintain the condition of their home, they can enjoy freedom from monthly mortgage payments and spend their money in the ways they choose.

What Are the Requirements of a Reverse Mortgage for Older Adults?

For your parents to qualify for a reverse mortgage, they need to meet several requirements, including:

  • Age: At least one homeowner needs to be 62 years old to qualify for a HECM mortgage. The age requirement for proprietary loans is 55.
  • Ownership: Your parents need to have sufficient equity in their home to qualify. A reverse mortgage may be used to pay off an existing mortgage.
  • Residency: The house must be your parents’ primary residence. They need to live there for most of the year to qualify for a reverse mortgage.
  • Counseling: If homeowners are interested in a reverse mortgage, they will need to attend a counseling session about reverse mortgages. These sessions must be federally approved and are conducted via telephone.

Frequently Asked Questions About Reverse Mortgages

Senior Lending Corporation is committed to helping homeowners and their children understand their financial options so they can make informed decisions that will enhance their retirement years. Read our frequently asked questions to learn more about reverse mortgages!

How Much Will the Loan Cost My Parents?

A reverse mortgage comes with many of the same fees as a traditional mortgage, but they can be paid off through the loan proceeds. With minimal out-of-pocket expense, your parents can enjoy more of their retirement at a lower cost than other potential income streams. Reverse mortgage insurance is also required with a reverse mortgage.

Does the Bank Own My Parents’ Home If They Take a Reverse Mortgage?

No, if your parents take a reverse mortgage, they will still own and hold the title to their home. A reverse mortgage will limit the risk of foreclosure since it releases homeowners from monthly mortgage payments. Whatever may happen with the home’s value in the future, your parents will be protected due to being non-recourse.

Homeowners with reverse mortgages will still need to pay property taxes and homeowners’ insurance just as usual, though. They will also need to maintain their home in proper condition.

Will My Parents’ Monthly Expenses Increase?

Reverse mortgages will not increase your parents’ expenses since they do not require monthly payments. The loan only needs to be paid once your parents move or sell the home, so while they remain in the house, they will enjoy the many benefits of a reverse mortgage.

What Is the Effect of a Reverse Mortgage on My Inheritance?

If your parents leave their house to you or others as an inheritance, the heirs will be responsible for paying the loan balance which is usually done through a sale or refinance of the home, with all remaining equity going to the heirs. As your parents continue to live in the home throughout their lives, the loan balance will increase as well as the value of the home.

If you or other inheritors would like to keep the home, you can pay the entire loan balance through some other form of income, so paying off the loan yourself is a possibility.

Am I Responsible for the Loan If the Balance Owed Is More Than the Value of the Home?

Because a HECM reverse mortgage is a non-recourse loan, your parents and their heirs will never owe more than the appraised value of the home. After your parents vacate the house, it is sold to cover the loan balance, so you or other inheritors are free from any debt. If the loan balance is above the appraised value, the FHA insurance fund covers the costs.

Enable Your Parents to Live the Retirement They Deserve With Help From Senior Lending Corporation

Senior Lending Corporation offers comprehensive mortgage advice for children of seniors and retired homeowners themselves to help families make smart financial choices. Our licensed advisors will provide the compassionate and honest services you and your parents need to make informed decisions and enjoy time in retirement. Call us today at 800-822-1190 or speak with us online to learn how we can help your family.

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