Reverse Mortgage Info for Children of Senior Parents

My parents want to apply for a reverse mortgage, what are some things that I should be aware of?

Being a part of the “Sandwich Generation” has many adult children finding themselves in situations where they are not only taking care of their own children, but helping care for their elderly parents as well. While rewarding, the burden of taking care of so many people can be difficult, as you try to take care of your children and assist your parents with their financial situations. The Home Equity Conversion Mortgage (HECM) program, also known as reverse mortgage, can be a great financial tool that can assist senior citizens with limited income by tapping into their home equity and turning it into cash.

What is a reverse mortgage?

A reverse mortgage is an Federal Housing Authority (FHA) insured loan which allows senior citizens, 62 or older, to continue living at home, by tapping into their home equity and turning it into loan proceeds. They do not have to make monthly payments and it is deferred until they no longer meet the terms of the loan (paying taxes and home insurance) or if they move out of the home permanently. This loan allows senior citizens to gain financial independence as there are no restrictions on how the loan could be used, which means they are able to pay off debts, cover medical bills, cover basic living expenses, pay for home renovation and much more.

Use the Reverse Mortgage calculator to check for eligibility.

Who owns the home?

The homeowner, your parents, would still own the home. The bank does not own the home and will not collect payments on the reverse mortgage as long as the terms of the loan are being met. Your parents will also continue to retain ownership or title to the home until the last surviving borrower leaves the property permanently.

What are the terms of the reverse mortgage loan?

The terms include that the homeowners must continue to live on the property as the primary residence and be sure to keep up with their taxes, home insurance and any other applicable fees. They must also be able to maintain the property to make sure it is in good condition.

If my parents pass away or are unable to pay back the loan, do I have to pay back the loan?

No, heirs and children are not required to pay back the reverse mortgage loan after the last borrower passes away. If you do not want to keep the home after your parents’ passing, the bank can take back the house and the loan will be satisfied or the home can be sold by the heirs.  A benefit to this program is that because this is a non-recourse loan, you and your parents are not responsible for paying more than what the home is worth, even if the loan out values the property. However, if you want to keep the home, you are able to refinance the reverse mortgage loan and into a regular mortgage loan.

What are the responsibilities of my parents if they get a reverse mortgage?

The terms of the reverse mortgage loan is that your parents must continue to pay taxes and homeowners’ insurance and maintain the physical integrity of the home. Also, the property must be their principal residence. If they do not meet the terms of the loan, or they have moved out permanently or the last borrower has passed away, then the loan will become due.

How much will the loan cost my parents?

The cost of a reverse mortgage can vary from person to person. Fortunately, most of the fees of the reverse mortgage loan can be paid out of the loan proceeds. Fees included in a reverse mortgage include HECM origination fees, mortgage insurance premium, and third party fees, such as appraisal fees and title insurance.

My parents plan on downsizing their home. Can a reverse mortgage help them?

More and more seniors are looking to downsize their homes to better fit their physical and personal needs, some are even looking for homes closer to their children and grandchildren so that they can be near family. However, buying a new house and later obtaining a reverse mortgage can be a long and costly process.

Instead of obtaining a regular reverse mortgage, your parents can apply for the HECM for Purchase program that allows seniors to purchase a new home and apply for a reverse mortgage in one transaction. This process allows home buyers a chance to have a new home, without making monthly payments as it is paid through the reverse mortgage. Read more about HECM for Purchase here.

If you would like to learn more about how a reverse mortgage can be beneficial to your parents’ retirement, speak with a Reverse Mortgage advisor today at 1-888-808-8486.

Read Related Articles: 

Who Repays the Reverse Mortgage Loan? 

Are Reverse Mortgages a Good Idea for Your 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 so much for reading!

-Alan F.

Image courtesy of [graur razvan ionut] / FreeDigitalPhotos.net