Adult Children

Addressing Your Concerns About Your Parents’ Reverse Mortgage

Here’s a breakdown of some key questions you might have regarding your parents’ reverse mortgage, worded similarly to the original text:

Inheritance Impact:

• While accessing home equity, their property value could rise, potentially leaving some equity after the loan matures. However, it’s not guaranteed. Their remaining equity might be depleted.
• The upside: a more comfortable life for them, potentially reducing their reliance on you financially.

Home Ownership:

• Your parents retain ownership and residency as long as they meet loan requirements: maintaining property taxes, homeowner’s insurance, and basic upkeep. Neglecting these could trigger a loan default.
• Similar to a traditional mortgage, a lien is placed on the property, but ownership remains with your parents as long as they comply with the loan terms.

Loan Repayment Amount:

• The total owed will include the borrowed sum (up to the home’s value), mortgage insurance premiums, accrued interest, servicing fees, and any other financed costs.

Repayment Options:

• Three options exist: selling the home (potentially keeping leftover proceeds), repaying directly from personal funds, or refinancing the loan.

Equity After Repayment:

• Your parents or heirs can either keep the home and cover the remaining loan balance or sell the property and use the proceeds to repay the reverse mortgage. Any remaining equity goes to the owners or heirs.

Moving to Assisted Living:

• The loan becomes due when the last borrower permanently vacates the home, including moving to assisted living, selling, passing away, or moving in with you.

Loan Exceeding Home Value:

• The Home Equity Conversion Mortgage (HECM) is non-recourse, meaning it’s secured only by the house. They won’t owe more than the home’s value. Heirs wanting to keep the home can pay the lesser of the loan balance or 95% of the appraised value, minus closing costs and realtor commissions.

Risks Involved:

• Social Security and Medicare benefits typically aren’t affected. Consult your parents’ lender, tax advisor, or a counseling agency to clarify potential impacts on other programs.
• The loan is secured by the home, and non-compliance could lead to foreclosure. Discuss all risks with your attorney and/or financial advisor.

Spending Restrictions:

• Your parents have complete freedom regarding how they spend the money. Common uses include paying off debt, making home improvements, traveling, replacing a car, or eliminating their existing mortgage payment (absorbed into the reverse mortgage). However, they’ll still need to keep up with property taxes, HOA fees, and home maintenance.

Fees Transparency:

• The lender must provide a Total Annual Loan Cost (TALC) disclosure as mandated by the Federal Reserve Board. This document details all projected transaction costs associated with the reverse mortgage.

Remember: They can generally keep their home by fulfilling the loan terms, including property taxes, homeowner’s insurance, and maintenance.

Important Note: It’s highly recommended to consult with the appropriate benefit agencies to gain a clear understanding of any potential impacts.