If your parents have mentioned they are considering a reverse mortgage, you probably have some questions. People who are still relatively young don’t have much reason to be familiar with these loans, and often when they do, they might have a negative impression. After all, there is quite a lot of misinformation surrounding them, and these myths often ring louder than the facts. It can also be difficult to acknowledge and accept that your parents need financial assistance; these are the people that raised you and provided for you, so it is often hard to see them require a little extra help. A reverse mortgage, however, is an excellent way for them to live their retirements on their own terms — with the financial freedom to enjoy their 60s, 70s, and beyond. In today’s blog, Family Home Loan Texas gives advice to those whose parents are considering a reverse mortgage.
What Is A Reverse Mortgage?
Before we discuss the ways a reverse mortgage can help your parents, it is important for you to understand the core facts about them. It s a loan that is available to homeowners aged 62 years and older, allowing them to borrow a portion of their home’s equity as tax-free income. It can only be taken out on a home that is their primary residence — meaning they must spend over six months a year living in it. While anyone can who is of age can receive one, it typically makes the most financial sense if they have around 50% equity in the home or more.
A major benefit of this loan is that instead of making monthly payments, they receive money — either as a lump sum, monthly payments, or a line of credit. One of the best, most attractive aspects of a reverse mortgage is that your parents won’t have to pay any of it back until they cease living in the home. Even once they do leave and need to pay it back, they will never owe more than the value of the home.
What Can They Spend The Money On?
Reverse mortgages are all about financial flexibility, so they can spend their funds on pretty much anything. After all, the money they receive is based on their home equity, so the funds are truly their own. Many individuals who take out this loan use the money for large medical expenses, home repairs, and paying for relatives’ education costs. Many of those who qualify are nearing or are in retirement, so they are living on a fixed income; a reverse mortgage allows them to have additional funds without dipping into any retirement accounts that may incur a tax penalty. Again, any money received is considered a non-taxable income, so they get the full amount.
Can They Lose Their Home?
No, they will not lose their home. This is one of the most persistent myths surrounding these loans. When they receive a reverse mortgage, they retain the title to their home. It is still theirs, and the house is simply collateral for the loan. This paired with the fact that they don’t have to make monthly payments means that it is very rare that they will lose the home. In fact, the only ways for the loan to default are if they stop paying property taxes, regular upkeep, or insurance costs. It can also occur if their home stops being their primary residence. Again, it is rare that any of these happen, so you can rest easy knowing that your parents can stay in their house for as long as they want.
Can I Still Get The Home If They Leave It To Me?
If your parents pass away without having paid off their obligations, you can still receive the home if they leave it to you in their will. After all, they retain full ownership of it. If this is the case you have a couple of options. If you wish to keep the home, you can pay off the remaining balance of the loan and hold onto it. Alternately, you can sell the home and use the proceeds to settle the debt. Anything that’s leftover is for you to keep and do with as you please. Again, a major benefit of the mortgage is that you will never have to pay more than the appraised value of the home. With appreciating house values, there’s a good chance you will still make money from the sale, even factoring in interest rates.
Is It The Right Decision For My Parents?
Every person’s needs are unique, so there is no blanket answer for this. However, it is important to know that before they can get a reverse mortgage, they have to meet with a HUD (Department of Housing and Urban Development) sponsored independent counselor. This person goes over all the details of a reverse mortgage and also consults your parents to help them figure out if it is the right decision for their unique financial situation. Because of this, there are no surprises for your parents; they are given unbiased advice and insights that will help them understand if a reverse mortgage is right for them. It benefits everyone for those potentially getting this loan to be as informed as possible. Your parents benefit because they can make a responsible decision, and lenders feel more comfortable providing the money if your folks know their obligations.
How You Can Help
The best thing you can do when your parents are considering a reverse mortgage is to be supportive. It is a major decision for them and one they certainly won’t take lightly. They deserve to spend their retirement years feeling comfortable and secure, and a reverse mortgage can help them feel financially free.
Contact Us To Learn More About Reverse Mortgages
If your parents are considering this type of loan, we are always happy to speak with them or you. Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about a reverse mortgage loan and to receive a free, no-commitment consultation.