A reverse mortgage is a great option for individuals age 62 and older to get the funds that they need to keep living in their homes. With multiple methods for taking the funds (i.e. lump sum, monthly payments, line of credit, or a combination), senior citizens have flexibility with their funds. They can use these funds for everything from paying off an existing mortgage to repairing a home to paying for in home care.
As an adult child helping parents or in-laws with a reverse mortgage, it is understandable to have a lot of questions since there are pros and cons to this type of loan. You want to do what is best for your parents without compromising your own future. The following questions and answers address some of the most common concerns that adults face during the process of obtaining a reverse mortgage for their parents.
How much money can my parents expect to receive?
The amount of funds that your parents are eligible for is dependent upon the age of the youngest parent at the time of the application, the type of reverse mortgage, the value of their home, and the current interest rate. The older a person is, the more proceeds he or she can receive.
Will my parents have additional monthly expenses with a reverse mortgage?
As long as your parents are living in their home, they do not have to make monthly payments toward the loan balance. However, it is important to note that they are still responsible for paying the insurance, property taxes, any required home repairs, and general maintenance.
Will I still receive an inheritance?
Your parents’ home may appreciate in value while they tap into their equity, which could leave some equity when the loan ends. It’s important to remember that the reverse mortgage allows your parents to live in comfort without having to depend on family members to support them.
How much money will they owe when it is time for the loan to be repaid?
Your parents are responsible for paying the total amount that they borrowed as well as accrued mortgage insurance, accrued interest, and any additional fees and costs that were financed via the loan amount.
What happens to my parents’ home if they move into a retirement community?
You defer monthly interest payments until your parents sell the home, no longer occupy it as a primary residence, or pass away. Regardless of what you decide to do with the house, the reverse mortgage becomes due and payable when your parents move into the retirement community.
What happens if my parents or I decide to sell the house in order to repay the loan?
There are two options for this scenario. The first option is that your parents or you and your siblings can keep the home and pay the balance due on the reverse mortgage. The second option is that your parents can sell the home and use the proceeds to pay off the reverse mortgage.