At some point, we all reach the age where we find ourselves taking on additional expenses regarding both our children, as well as our retired parents. With the shaky state of the economy over the last few years, it’s not surprising that many children of senior citizens are concerned about how their parents will finance the remainder of their lives.
While the vast majority of America’s elderly have been diligent about planning for their retirement, many still struggle to meet month-to-month expenses or medical bills. With that, since most seniors generally retain the majority of their wealth in their home equity, options which allow them to tap into that equity—such as a reverse mortgage—may be the best option.
As with any financial matter, the decision regarding whether to apply for a reverse mortgage is a personal decision; however, the odds are good that it’s something your parents will discuss with you first. Therefore, being prepared to offer them the best advice is important.
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WHAT IS A REVERSE MORTGAGE?—It’s a loan made available to homeowners who are over the age of 62, which allows them to convert a portion of their home’s equity into cash. Instead of making monthly payments to the lender (as with a traditional mortgage), the lender makes payments to the borrower.
WHAT ARE THEY USED FOR?—Since there are no restrictions placed upon how a borrower may use their reverse mortgage proceeds, the resulting money can be used for everything from debt management and basic living expenses, to health care.
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WILL THE BANK OWN THEIR HOME?—With reverse mortgages, the borrower always retains the title to their home. At no point will the lender own the home.
HOW MUCH MONEY CAN THEY EXPECT?—The actual proceeds will vary depending upon things such as the age of the youngest parent, the value of the home, interest rates, and upfront costs. The funds will then be delivered in the form of one lump sum, a line of credit, or as fixed monthly payments.
IF MY PARENTS DIE, WILL I BE RESPONSIBLE?—Even if the loan balance is more than the value of the home at your parent’s passing, you will never be held responsible for the remainder. The government pays absorbs the cost in these situations through its insurance fund, which the borrower pays into on a monthly basis.
In the end, while it’s important to educate yourself on the process in advance, an experienced mortgage lender will be able to help you make an informed final decision. To learn more, feel free to contact me!
