Could a reverse mortgage help your mom and/or dad? We will answer your questions and common concerns with the loan for seniors.
How much money can my parents get?
The amount of the loan proceeds is based on the age of the younger of the homeowners, the interest rate and the value of their home. Any mortgages or liens on the property are the first thing to be paid from the loan proceeds. So, if there is an existing mortgage, it will be paid off and mortgage payments will not be required going forward. That will immediately free up money in the monthly budget! Of course, your folks are still responsible for property taxes, homeowner’s insurance and maintaining the home as is usual for any mortgage. In addition, there may be cash available at closing, a line of credit that is guaranteed to grow and compound annually, a monthly income stream or a combination of these options.
We are advocates of the strategies and use of a reverse mortgages as researched by Wade Pfau, PH.D., CFA, RICP® Founder of Retirement Researcher, Don Graves RICP®, CLTC®, CSA, Shelly Giordano, MA Founder of Academy Home Equity in Financial Planning at University of Illinois and the Sacks Brothers (Barry H. Sacks, Ph.D, J.D. and Stephen R. Sacks, Ph.D).
Will the bank own their home?
No. No one owns the home but your parents. They must continue to pay property taxes, homeowner’s insurance (HOI) and maintain the home. There are mechanisms that may be used to have the lender pay property taxes and HOI so that your folks do not have to worry about making those payments. Give us a call to learn more.
How and when does the loan have to be repaid?
When the last borrower or non-borrowing spouse leaves the home permanently, the loan must be repaid. Many times, the heirs decide to sell the home, repay the loan balance and keep the rest of the equity. Sometimes the heirs want to keep the home. In that case, they simply refinance the loan balance or 95% of the appraised value at that time into their own name(s). The reverse mortgage is paid, and the home belongs to the heirs.
What about adult kids who live with their parents?
When the last borrower or non-borrowing spouse leaves the home, the loan becomes due. If the home is sold, anyone who was living there must make other arrangements. However, we have helped adult children who are 62 and over to be a borrower on a reverse mortgage with their parent. In that case, because they are on the reverse mortgage, they would not move when their parent leaves the home permanently.
Can my parents decide to sell their home after getting a reverse mortgage?
Yes, of course. The home belongs to your folks and no one else. There is no difference between a reverse mortgage that needs to be paid off and any other mortgage. When the home is sold the proceeds first go to repayment of the mortgage and the rest would go to your folks for their next adventure.