Special Information for Adult Children
Questions to ponder
- 1. Do I want to supplement their income?
- 2. Do I have the financial resources to help my parents with their medical and living expenses?
- 3. Do I want to inherit the maximum equity from my parents home OR do I want them to enjoy the most income possible today?
- 4. Is there a concern from other siblings as to inheriting the home or the equity?
- 5. Do I want my parents to maintain their dignity and independence?
- 6. Do I want my parents to live at the highest standard of living possible?
- 7. What are my parents’ wishes regarding 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 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?
No, the bank will not take their home. Throughout the life of the reverse mortgage, your parents will continue to own their home and retain title. Their obligation is to stay current with property tax payments and hazard insurance payments.
- How much money will they owe when the loan has to be repaid?
Your parents will owe the total amount borrowed, accrued mortgage insurance fees, accumulated interest, servicing fees if any, 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 from equity, choose to reimburse the lender directly from a personal account, or refinance the loan with a traditional, conventional option.
- What happens to the equity if my parents or I decide to repay the loan by selling the house? If you decide to sell the home, the proceeds from the sale pay off the reverse mortgage loan. Any remaining equity is retained by the owners or heirs.
- What happens to my mom and dad’s house if they move into a senior care facility?
A reverse mortgage becomes due and payable when the last borrower moves out of his or her home permanently. For instance, this applies to moving into a senior care facility, selling the home, passing away or moving in with the children. The borrower ( who might be ill) can only be out of the home for 12 mos. before the loan is considered due and payable.
- 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.
- What are the risks my parents would be taking in receiving a reverse mortgage?
A reverse mortgage doesn’t affect regular Social Security or Medicare benefits. To find out if it impacts other federal or state assistance or medical programs, contact your reverse mortgage lender, tax attorney, or counseling agency. It is a negative amortizing loan, because monthly mortgage payments are not required. Thus the loan balance grows larger over time. When this loan is treated as financial planning tool risk can be minimized.
- Are there restrictions on how my parents spend their money?
No. 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. Often today a reverse mortgage loan helps supplement medical costs. A growing trend is to leave funds in a line of credit, which funds can grow larger for future use.
- Is there any information that provides what all of the fees will be?
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. A Good Faith Estimate is always part of the loan application. These fees can be provided on a worksheet to be viewed and discussed prior to application as a proposal.