QUESTIONS TO PONDER:
- Do I have the financial resources to help my parents with their medical and living expenses?
- Is there a concern from other siblings as to inheriting the home or the equity?
- What are my parents’ wishes as to staying home if long-term medical care is needed?
Will Mom and Dad use up my inheritance?
100% of any remaining equity goes to the heirs. Yes, a reverse mortgage is a tool to tap into the equity in your parents’ home, but inflation and home value appreciation could allow for some equity to be left at the end of the loan. Your parents are also able to live more comfortably without having to depend upon family members to support them.
Will the bank take their home?
No, the bank will not take their home as long as they continue to meet the loan guidelines. This includes keeping property taxes current, maintaining required homeowner’s insurance, and keeping the home in reasonable repair so it isn’t condemned by the County. Failure to do these things could result in the loan being called due and payable. Your parents will continue to own their home and retain title throughout the life of the loan†.
How much money will they owe when the loan has to be repaid?
They will owe the total amount borrowed, accrued mortgage insurance premiums, accumulated interest, servicing fees, if any, and any other costs and fees financed through the loan amount.
How do my parents repay the loan?
There are three viable options for your parents. They can sell their home to repay the lender and collect any leftover proceeds, choose to make payments to the lender directly from a personal account, or refinance the loan. There are no prepayment penalty fees†.
What happens to the equity if my parents or I decide to repay the loan by selling the house?
Your parents have two options. Either they or their heirs can keep the home and pay the balance due, or they can decide to sell the home and use the proceeds to pay off the reverse mortgage or 95 percent of the then appraised value. Either way, the owners or heirs retain 100% of any remaining equity.
What happens to my mom and dad’s house if they move into a senior care facility?
A reverse mortgage becomes due and payable when the last borrower moves out of his or her home permanently. For instance, moving into a senior care facility, selling the home, passing away or moving elsewhere. *Tip: Explore your options. Sometimes in-home care services can be more cost-effective and more comfortable than sending your parents to a senior home for long-term care*.
What happens if the loan balance becomes greater than the value of the home?
The Home Equity Conversion Mortgage (HECM) is a non-recourse loan, which means that the loan is only secured by the home and the property. As HECM borrowers, your parents pay a mortgage insurance premium to the United States Department of Housing and Urban Development (HUD). This protects them from being responsible for more than the their home value when the loan becomes due†.
What are the risks my parents would be taking in receiving a reverse mortgage?
A reverse mortgage doesn’t affect regular Social Security or Medicare benefits. To find out if it impacts other federal or state assistance or medical programs, contact your reverse mortgage lender, tax attorney, or counseling agency. It is wise to identify and discuss all risks with your own attorney and/or financial advisor.
Are there restrictions on how my parents spend their money?
Your parents can spend their money any way they like. Borrowers have often used a reverse mortgage to eliminate existing mortgage payments, reduce existing debts, make home improvements, embark on vacations, or replace old vehicles. (Any existing mortgage debt is refinanced into the reverse mortgage loan.)
Is there any information that provides what all of the fees will be?
The Federal Reserve Board requires your parents be provided with the Total Annual Loan Cost, or “TALC” disclosure. The TALC displays the total transaction costs over the projected life of the loan, which will allow your parents to see all costs, if any, related to the reverse mortgage.
*California homeowners, please consult a qualified attorney regarding “intent to return home” laws.