How a Reverse Mortgage Can Benefit Your Children
As life expectancies continue to lengthen, seniors regularly outlive their retirement savings and sometimes struggle to supplement fixed incomes. Although families care deeply for their aging relatives, the cost of supporting them financially in their later years can cause added stress to an already delicate situation.
If you are like many people aged 62 or older, you probably value your independence and strive to remain that way as long as possible—financially and physically. A reverse mortgage or Home Equity Conversion Mortgage (HECM) can help you maintain financial autonomy and can give you and your loved ones more flexibility as you age. Here are just some of the ways that a reverse mortgage could benefit not only you, but your children as well.
Peace of Mind
The financial stress of caring for both growing children and aging parents is all too familiar to people in their thirties and forties, often called the “sandwich generation.” Your adult children are navigating the expenses of raising families of their own, so knowing that you are well taken care of financially will give them a sense of relief and comfort. Rather than feel guilty for being dependent on your family, you can take financial planning into your own hands by supplementing retirement funds with a reverse mortgage. You’ve paid into your home, and gained valuable equity, so now could be the ideal time to utilize some of those benefits.
Release from Debt Responsibility
Unlike other loan types, when the last remaining HECM borrower dies, the heirs have several options on how to handle any remaining loan balance. The heirs should discuss the options and any rules or requirements with the loan servicer.
If a home is worth more than what is owed on the HECM your children may decide to keep the house and simply pay off the reverse mortgage amount with other assets or to refinance the HECM and obtain their own mortgage. The heirs may also choose to sell the home to pay off the HECM and keep the remaining proceeds.
If the HECM balance is larger than the value of the home, the heirs can pay a reduced amount as low as 95% of the home value as payment in full, and keep the home; sell the home, paying off the HECM or they may simply sign over the deed of the house to the lender to satisfy the debt. Once the property is turned over, the loan balance is settled and heirs are released from any financial responsibility.
If you’re considering a HECM to ensure financial autonomy and give your family peace of mind, contact a loan officer to discuss FAQs and options today.
Things to know about Reverse Mortgages:
- At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
- Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees
- The loan balance grows over time and interest is charged on the outstanding balance
- The borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home
- Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment