Is a Reverse Mortgage Right for Your Parent?

If your parent, or parents, own their home and live on their Social Security and possibly pension, they may have considered a reverse mortgage after hearing about it from friends or seeing a commercial offering reverse mortgage services.

Is a reverse mortgage right for your parents? It certainly could be. A reverse mortgage allows a homeowner, aged 62 or older, to convert a portion of the equity in their home into a monthly tax-free income. The homeowner does not give up their home, does not lose title, and does not take on a new monthly payment. This sounds too good to be true, that someone could be paid to take on a mortgage, but that is exactly how a reverse mortgage works. The homeowner can receive a lump sum payment or monthly payments, or draw money as needed.

Reverse mortgages can be obtained by homeowners who are paying off another mortgage, or by people who own their homes outright with no mortgage, but they are best used in the absence of another mortgage. This allows the homeowner (your parent, for instance) to draw on the total value of their home.

A reverse mortgage can help with daily living expenses, or with the unexpected such as medical bills or emergencies such as car or home repairs.

Of course, because this is a loan, it must be paid back. There is a monthly service fee for the mortgage, which usually runs about thirty dollars. If your parents cease to live in the home, sell it, or pass away, the loan must be repaid. Ideally, the proceeds from selling the home would be greater than the reverse mortgage.

This is a very good deal for many older homeowners who need help with their living expenses.

However, there are some risks. If your parents need to sell their home for some reason but the selling price falls short of the amount owed on the reverse mortgage, they will be responsible for the difference. Also, if they sell the home within a few years, they may lose a great deal of income from the reverse mortgage. The upfront costs may be too much to risk if they will be in their home less than three years.

If your parents are in good health and able to live on their own, and if they intend to stay in the home they now own for the rest of their lives if possible, then a reverse mortgage might be a good way to help them supplement their monthly income without having to rely on their children to help them. They have earned the equity in their home, and using that equity to assist them financially now is a good move for many people.

Your parents will make the final choice, obviously, but by knowing how a reverse mortgage works, and the options available to your parents if they choose to take on this kind of mortgage, you can offer your assistance in obtaining the mortgage if they decide to go with a reverse mortgage, and your advice if consulted.


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