Reverse Mortgage Information

Children of Seniors

What is a reverse mortgage?

A reverse mortgage is a type of loan that is available to senior homeowners. It is like a traditional mortgage except the bank pays the borrower, rather than making payments to the bank. It enables the homeowners to convert part of the equity in their home into cash.

What do people use reverse mortgages for?

There is no limitations as to how a borrower may use their reverse mortgage proceeds. The money could be used for virtually anything, including: home repairs, college tuition for grandchildren, medical bills or prescriptions, in-home nursing care, everyday living expenses, credit card debt, or even traveling.

Should my mom and dad get a reverse mortgage?

Many children are concerned about the financial future of their parents' lives. The vast majority of senior citizens have their wealth in their home equity. If your parents are struggling financially to meet their monthly expenses or additional health expenses, accessing the equity may be the best solution for all of you.

Will a reverse mortgage increase my parents' monthly expenses?

As long as they live in the home, they are not required to make any monthly payments. Borrowers do not have to pay back the loan until the home is sold or otherwise vacated. However, it is the borrower's responsibility to stay current on the property tax and insurance payments.

If my parents take a reverse mortgage, does that mean the bank owns their home?

No. The lender never owns the home, even after the last surviving homeowner permanently vacates the property.

How much money can my parents expect?

The amount of proceeds received depends on a few factors: the age of the youngest borrower, the value of the home, interest rate, and upfront costs.The funds can be distributed in several ways: Lump sum, tenure (equal monthly payments for as long as the homeowner lives in home), term (equal monthly payments for fixed number of years), line of credit, or any combination of these options.

Am I responsible for the balance if/when my parents move out or pass away?

You or your parents will never have to pay more than the appraised value of the home or sale price. If the loan balance exceeds the appraised value of the home, then the federal government absorbs that loss (no matter how large the loan balance).

If my parents get a reverse mortgage, what are their responsibilities?

A reverse mortgage must be the primary lien on a home.The property used as collateral for the reverse mortgage must be the borrowers' primary residence.The homeowners are required to remain current on real estate taxes, home insurance, and HOA fees (if applicable). Failure to remain current may result in a notice of default.It is the responsibility of the homeowners to maintain the condition of their property and make necessary repairs.

What if my parents want to downsize? How might a reverse mortgage help them?

Using a reverse mortgage to purchase a home is becoming a very attractive option. The HECM for Purchase is the loan used to purchase a home outright. It uses funds from the sale of the previous home, private savings, gift money, and other sources of income combined with the reverse mortgage proceeds. This process leaves the homeowner without a monthly mortgage payment.