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Are Reverse Mortgages a Good Idea for Your Parents?

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In the last few years, reverse mortgages, also known as Home Equity Conversion Mortgages (HECM) have been gaining in popularity as a financial tool to assist senior citizens during their retirement years. With all the growing attention, you may be wondering if a reverse mortgage might be a good option for your parents’ financial needs.

While it is inevitably the borrowers’ decision whether or not they should apply for a reverse mortgage, many concerned adult children are looking to assist their parents throughout the whole process. Here is some basic and important information for adult children of elderly parents who are considering a reverse mortgage loan.

What is a Reverse Mortgage?

A reverse mortgage is a Federal Housing Authority (FHA) insured loan available to homeowners 62 years and older. The reverse mortgage allows the homeowner to age in place by converting a portion of their home equity into cash. Unlike traditional or second mortgages, borrowers do not need to make monthly payments and the loan is deferred until they no longer live in the home as their primary residence or when they no longer meet the obligations of the loan.The borrowers’ obligations include maintaining the property and keeping up with taxes and insurance on the property.


  • Everyone on title must be at least 62 years or older.

  • Must have substantial equity on property.

  • Must live in home as primary residence.

  • Because there are no monthly payments to be made, there are currently no income or credit score requirement. *note: However, beginning January 13, 2014 – there will be a mandated financial assessment for those who are looking to apply for a reverse mortgage.

To read more on how a borrower can qualify – go to: How To Qualify For a Reverse Mortgage

What to consider:

  • Do you want to inherit the home?

    • It is a very good idea to discuss with the family about what will be done with the house after your parents pass away. Typically, the loan will become due when the last borrower on title passes away, and if it is expected that the heirs keep the home, it may be a little difficult unless planned accordingly. If the heirs want to keep the home, they can pay the loan back with other assets or they can work with the bank to refinance the loan. If that is not possible, or you do not want to inherit the home, the heirs can also work with the bank to sell the home and whatever is left after the reverse mortgage loan is paid off can be given to the heirs. Another option is for the heirs to walk away from the home and return it to the lender. Because this is a non-recourse loan, if the heirs choose to walk away from the property, they can do so without any liability or damage to their credit.

  • Do your parents plan on moving out of the house soon?

    • Because a reverse mortgage loan can be expensive, it is not advised for borrowers who plan on moving out of their home in a few short years to obtain a reverse mortgage. Also, once the last borrower leaves the home permanently, the loan will be come due. Borrowers who want to move to a new home to move closer to family or to better suit their needs can apply for a HECM for Purchase which will allow them to buy a new house and apply for a reverse mortgage in one transaction.

  • Do they need the extra cash flow?

    • A reverse mortgage loan is a great way for senior citizens to supplement their Social Security income and retirement funds. If you see that your parents may benefit with a little extra cash flow to help with paying bills, buying groceries or even a new car to get a round with – then a reverse mortgage might be a great idea for them. One of the biggest benefits of having a reverse mortgage is that they can choose however they want to spend it. Most borrowers usually use their reverse mortgage proceeds to find relief from some of the heavy financial obligations, or they could use it for practical needs such as long-term health insurance.

Tips to talk about Reverse Mortgage:

  • Get the whole family involved.

    • Whether it is you or your parents initiating the conversation about reverse mortgages, it is important to bring the family in the conversation to understand what a reverse mortgage is and the reasoning behind this. This is the opportunity to discuss what will be done with the property after your parents pass away, whether or not the heirs want to keep the home, sell or walk away from the property. It is important to remember to think about what is the best financial option for your parents during their retirement.

    • It is also necessary to inform all those living in the home (who are not on title) that a reverse mortgage is being taken out on the home. After the last borrower passes away, it is required by the lender that those living on the property to vacate the property or to pay back the loan in full.

  • Involve a financial professional or attend a reverse mortgage counseling session.

    • If you or your parents are still unsure whether or not they should take out a reverse mortgage, then a professional would be beneficial to helping them look at all their options. Another option is to attend a third party reverse mortgage counseling session. This is a requirement prior to obtaining a reverse mortgage, but it is beneficial because it allows potential borrowers a chance to see all their options, as well as have a third party counselor provide information regarding reverse mortgages.

  • Be patient.

    • The decision to get a reverse mortgage or any huge financial decision can be a stressful one. The best advice is to be patient with your parents’ decision making process and to be supportive of their financial choices. It is ultimately up to your parents to decide what would be beneficial to them to help support them during their golden years.


Read Related Articles:

5 Reverse Mortgage Benefits

Reverse Mortgage Info for Children of Senior Parents 

About the Author:

I have been working in the reverse mortgage industry for 20-plus years. My goal is to provide consumers the most up-to-date and relevant information about the reverse mortgage industry and how it can affect them.

Thanks  for reading!

-Alan F.

Image courtesy of [ambro] / FreeDigitalPhotos.net

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