Questions to Ponder
1. “Do I have the financial resources to help my parents with their medical and living expenses?”
2. “Is there a concern from other siblings as to inheriting the home or the equity?”
3. “What are my parents’ wishes as to staying home if medical care is needed for an extended time?”
“Will Mom and Dad use up my inheritance?”
While tapping into their equity, your parents’ home may be appreciating in value, which could allow for some equity left at the end of the loan. They are also able to live comfortably without having to depend upon family members to support them.
“Will the bank take their home?”
The bank will not take their home as they comply to the terms of the loan.* Throughout the life of the reverse mortgage, your parents will continue to own their home and retain title.
*Your parents must timely pay taxes, insurance and maintenance on the home.
“How much money will they owe when the loan has to be repaid?”
Your parents will owe the total amount borrowed, accrued mortgage insurance premiums, accumulated interest, servicing fees, 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 the proceeds, choose to reimburse the lender directly from a personal account, or refinance the loan.
“What happens to the equity if my parents or I decide to repay the loan by selling the house?”
There are two options: Your parents or heirs can keep the home and repay the balance due on the reverse mortgage or sell the home and use the proceeds to pay off the reverse mortgage.
“What happens to my mom and dad’s house if they move into a senior care facility?”
When the last borrower permanently leaves the home to move into a senior care facility, live with family, or passes away, the balance due on the reverse mortgage must be paid. In the event the borrower decides to sell the home, the reverse mortgage must be paid as well.
“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 borrower can never owe more than what the house is worth. As HECM borrowers, your parents pay a mortgage insurance premium to the U.S. Department of Housing and Urban Development (HUD). They, in turn, guarantee that the borrower will never owe more than the value of their home when the loan becomes due and payable.
“Are there restrictions on how my parents spend their money?”
Your parents can spend their money any way they want. Borrowers have used reverse mortgages to pay for grandchildren’s educations, vacations, new cars, home improvements or to eliminate debts. The money can be used for anything they desire.
“Is there information that can tell us what fees are associated with a reverse mortgage?”
The lender is required to provide your parents with the Total Annual Loan Cost, or “TALC” disclosure, which is required by the Federal Reserve Board. The TALC displays the total transaction costs over the projected life of the loan, which will allow your parents to see all costs related to the reverse mortgage.
I am a Residential Mortgage Planner with special emphasis and training on Reverse Mortgages. Unlike a traditional loan officer, my role is to help my clients integrate the loan that they select into their overall financial plans to help minimize taxes, improve cash flow and minimize interest expense. I help my clients successfully manage their home equity to increase liquidity, safety and rate of return.
Office: (302) 260- 7088
Direct: (410) 868-0423
Fax: (866) 950-3046