reverse mortgage for seniors

Understanding Reverse Mortgages For Seniors

Reverse mortgages are an option for seniors to draw on the equity they have in their home. While this FHA loan program is designed to give seniors additional money towards retirement, it does come with some considerations that need to be kept in mind.

Understanding a reverse mortgage takes some time and effort. Before you parent may enter into a reverse mortgage, they must meet with a counselor, so it is clear that they know all the responsibilities, implications, and requirements of the loan.

This is a crucial moment for your parent’s finance and creating a living trust to protect a senior can be a good option for them and for you.

We will discuss in this article

How Do Reverse Mortgages Work?

Reverse mortgages for seniors allow payment on the equity of the home based on the value of the home and how much of the loan has been paid to date. It is only eligible for seniors age 62 or older, and they must keep the home as their primary residence.

The equity of the home is converted into cash with a reverse mortgage for seniors that is provided in monthly payments or a lump sum. With a reverse mortgage, seniors such as your parents, are required to continue paying taxes and insurance premiums but are able to eliminate paying monthly mortgage payments if there is still a loan on the home.

Many seniors use the money generated from the home’s equity to provide for daily living expenses, home remodeling or even to pay off medical debt.

How Much Money Does A Reverse Mortgage Offer?

The amount of money that your parent would receive by entering into a reverse mortgage depends on how much equity has been built into the home. This would take into account the home’s current value as well as the amount left on the mortgage, interest rates, and the age of the youngest homeowner.

The amount that is borrowed on the equity in the home for a reverse mortgage for a senior doesn’t have to be paid back until six months after the last surviving homeowner has passed. In most instances, the home is sold to pay off the reverse mortgage, leaving any remaining balance for the heirs of the family.

The home doesn’t always have to be sold to pay off the reverse mortgage debt as the heirs can choose to keep the home and pay the balance of the loan on their own. If the home were to sell for less than the value of the reverse mortgage loan, the heirs are not responsible for paying the remaining balance as only the home proceeds go to paying off the debt.

If your parent chose to have a reverse mortgage as a senior, they would not be leaving the debt to you to take care of as the sale of the home should cover the loan and if it doesn’t no additional monies are necessary to pay back the equity loan.

Reverse Mortgages Pros And Cons

There are many pros and cons to having a reverse mortgage for seniors that could be a benefit or a detriment depending on their living situation.

The pros of a reverse mortgage are:

  • Your parent is able to continue to live in the home without any additional mortgage payments.
  • The home sale will pay off the debt of the reverse mortgage without any additional burden on you.
  • Debt doesn’t have to be paid back until six months after the death or moving out of the last surviving homeowner.
  • Provides money for your parents to pay back debt or live on after the age of 62.
  • Can take monthly payments or a lump sum as a payment option.

The cons of a reverse mortgage are:

  • The home must meet FHA requirements all the duration of the loan
  • Insurance and taxes must continue to be paid.
  • A senior’s heirs will not receive the value of the home as their inheritance.
  • Must be 62 years of age as a minimum.
  • Loan on the home must be paid fully or paid down considerable to be eligible for a reverse mortgage for seniors.

If your parent is contemplating getting a reverse mortgage keep in mind the pros and cons and think about the situation they are in. It may make financial sense for them and provide them with an added level of security during their retirement years.

When we talk about elder law is another interesting topic to discuss such as: Power of attorney and this can be a durable power of attorney or springing power of attorney. If we are in charge of our elderly parent is important to create a health care proxy for them in case they become incapacitated.

 

Sources:

https://reverse.org/what-is-a-reverse-mortgage/

https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmabou