Reverse Mortgages: Are They Good for My Elderly Parents?
From financial forums to commercials with Henry Winkler, reverse mortgages are in the news and on TV. This got me thinking, are reverse mortgages just scams to take advantage of people in their golden years? My parents are still quite some time from this point of their lives, but my grandparents are there. Someday my parents will be there, too.
So what’s the bottom line on reverse mortgages?
They’re not for everyone, but they may be an option for a lot of folks.
First, here’s the technical term from HUD: Home Equity Conversion Mortgages. Now, let’s take a look at what that means for every day people. Quite often, someone does not want to leave their home because they’ve lived there for so long. After all, a home is full of memories. But the reality is, sometimes economic conditions and events in life may leave us with poor financial portfolios in our golden years.
For some people in this situation, the reverse mortgage is a viable and sometimes necessary option. In very simple terms, a home owner cashes out the equity he or she has accrued in the home. This is used as income. Then, the borrower is able to stay living in the residence. Repayment of a reverse mortgage loan is only required once the home is no longer used as principal residence. Once this is the case, heirs or the estate can choose to repay the loan plus interest. Doing so will keep the home in the family. Then any equity left over will go to the estate.
So let’s take a look at one example. Jane Jones is 85 years old, with no retirement other than social security. Her husband passed a few years back. She wants to stay in the home they shared and raised their kids in. Since Jane has very little income, she has trouble paying for every day expenses like groceries. Jane could sell the house and lose the place she calls home, or she could receive a lump sum based on the equity in the house. When the inevitable time comes that Jane passes, her heirs can repay the loan amount to keep the house in the family. Otherwise the bank will take ownership and no additional debt is accrued. For her last 10-15 years or so, Jane has the chance to live at home like she wants, while still paying her bills.
Again, reverse mortgages are not for everyone. Seeing the commercial on TV or hearing about it from a friend at church may prompt you or your parents to consider it, but we encourage you to speak to a mortgage adviser face to face about this.
