Adult Children
Consider the following:
Is there concern among other siblings about receiving the house or the equity?
Do I have enough money to assist my parents with their medical and living expenses?
What are my parents' views on living at home if medical care is required for an extended period of time?
Common Concerns
Will Mom and Dad spend my inheritance? While dipping into the value of their property, your parents' home may rise in value, allowing for some equity to be left at the end of the loan, but this is not always the case. Your parents may be able to use up the remaining equity in their home. Keep in mind that they may be able to live more comfortably without relying on family members for support.
Will the bank take their home?
Your parents will continue to own and live in the home as long as they continue to meet the loan guidelines. However, they must keep their property taxes current, the required homeowner’s insurance in force, and the home in good repair. Failure to do these things could result in the loan being declared due and payable. Just as a borrower with a traditional mortgage retains ownership, your parents will continue to own their home and retain title as long as they abide by the loan guidelines and requirements. As with any mortgage, a lien is placed on the subject property.
Will the bank seize their property?
Your parents will be able to keep the house and live in it as long as they meet the loan requirements. They must, however, keep their property taxes current, maintain the needed homeowner's insurance, and keep the house in excellent repair. Failure to do so may result in the debt becoming due and payable. Your parents will continue to own their house and keep title as long as they follow the loan guidelines and criteria, just as a borrower with a regular mortgage does. A lien is put on the subject property, as with any mortgage.
How much money will they owe when the loan is due?
Your parents will be responsible for the total amount borrowed (up to the home's value), accruing mortgage insurance premiums, cumulative interest, servicing fees, and any additional charges and fees financed with the loan amount.
How will my parents pay back the loan?
Your parents have three viable possibilities. They have three options for repaying the lender: sell their home and receive any leftover proceeds, reimburse the lender straight from a personal account, or renegotiate the loan.
What happens if my parents or I decide to pay off the debt by selling the house?
There are two choices. Your parents or heirs can keep the house and pay off the reverse mortgage balance, or they can sell the house and use the money to pay off the reverse mortgage. In either case, the owners or heirs keep any leftover equity.
What happens to my parents' house if they move into a nursing home?
When the last borrower permanently moves out of his or her house, the reverse mortgage becomes due and payable. For example, moving into a senior care facility, selling a home, dying, or moving in with children.
What happens if the loan balance exceeds the value of the home?
Since the Home Equity Conversion Mortgage (HECM) is a non-recourse loan, only the house and the land serve as security. Your parents pay a mortgage insurance premium to the U.S. Department of Housing and Urban Development (HUD) as HECM borrowers. This insurance protects the borrower by ensuring that they are not obligated to pay more than the market value of their home when the loan becomes due and payable. Heirs who want to keep the house once the loan is paid off can pay the lesser of the loan total or 95% of the home's appraised worth, less any closing costs and real estate commissions.
What are the hazards that my parents might face if they received a reverse mortgage?
A reverse mortgage usually has no impact on regular Social Security or Medicare benefits. Contact your reverse mortgage lender, tax attorney, or counseling organization to find out whether it affects other federal or state assistance or medical programs. A mortgage on the home serves as security for a reverse mortgage loan, and noncompliance with loan terms may result in foreclosure. All potential hazards should be identified and discussed with your attorney and/or financial advisor.
Are there any constraints on how my parents can spend their money?
Your parents are free to spend their money anyway they see fit. Borrowers frequently use their reverse mortgage to pay off other debts, make home improvements, take vacations, replace an aging vehicle, or eliminate an existing mortgage payment (the existing mortgage debt is refinanced into the reverse mortgage loan, and your parents must continue to pay their property taxes on time, applicable HOA fees, and keep the home in good repair).
Is there any information available that details all of the fees?
The lender is obligated by the Federal Reserve Board to inform your parents of the Total Annual Loan Cost, or "TALC" disclosure. The TALC displays the total transaction costs over the loan's expected life, allowing your parents to view all costs associated with the reverse mortgage.
*Under normal circumstances, you cannot lose your house as long as you pay your property taxes, homeowner's insurance, maintenance charges, and other loan terms.
**Consult your benefit provider.
This material is not provided by, nor was it approved by the Department of Housing & Urban Development (HUD) or by the Federal Housing Administration (FHA). It is not intended to be a substitute for legal, tax, or financial advice. Consult with a qualified attorney, accountant, or financial advisor for additional legal or tax advice.
*There are some circumstances that will cause the loan to mature and the balance to become due and payable. The borrower(s) must continue to pay for property taxes and insurance and maintain the property to meet HUD standards or risk default. Credit is subject to age, minimum income guidelines, credit history, and property qualifications. Program rates, fees, terms, and conditions are not available in all states and subject to change.
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