Adult children may become concerned when their aging parents bring up the possibility of a reverse mortgage loan as they want to protect their parents’ interests. However, there are many misconceptions about reverse mortgages, so it’s important to educate yourself to ensure you have a clear understanding of how they work.
Reverse mortgage loans are best suited for seniors who plan to stay in their home for many years to come and who are able to continue paying their property taxes, homeowner’s insurance, and maintain the property.
Before any decision is made, it is highly recommended that anyone interested in a reverse mortgage loan meet with an experienced financial professional to discuss their current financial situation and future goals.
Understanding a Reverse Mortgage
Through a Federal Housing Administration-insured reverse mortgage, or Home Equity Conversion Mortgage (HECM), homeowners can access a portion of the equity they have built up in their home to supplement their retirement income.
Interest and ongoing mortgage insurance premium accrue on the loan balance throughout the life of the loan. The loan becomes due when the last homeowner on title no longer lives in the home full time, does not maintain the property, or does not pay required property taxes and insurance.
All homeowners on title must be at least 62 years old to qualify for a reverse mortgage loan. Homeowners must also have sufficient equity built up in their home in order to be eligible. Contact a reverse mortgage advisor at 800.976.6211 for more information about how much you may be able to borrow.
Repayment of the Loan
When the loan becomes due, there are a variety of options available for repaying the debt. You or your heirs can choose to repay the reverse mortgage loan and keep the home or put the home up for sale in order to repay the loan.
If the heirs want to keep the home, and the loan balance is more than the home is worth, they will only have to pay 95% of the current appraised value of the home.1 Another option is a deed-in-lieu of foreclosure, which means that the heirs may deed the home to the lender to satisfy the loan.
Another option is a deed-in-lieu of foreclosure, which means that the heirs may deed the home to the lender to satisfy the loan. All HECM reverse mortgage borrowers must meet with a HUD approved reverse mortgage counselor before obtaining a reverse mortgage loan.
Family and friends are encouraged to attend this meeting with the homeowner and ask any questions they may have such as questions about the reverse mortgage process, the specifics of the loan or the repayment process.
James A. Robbins, an elder law attorney recently discussed reverse mortgage loans with the New York Times saying,
“When the entire family is involved in the discussion about whether to take a reverse mortgage, sometimes the children understand their parents need the equity, while other times, they are openly opposed.”2
Therefore, it is vitally important for all parties involved to discuss the terms of a reverse mortgage loan and how obtaining one will impact their situation.