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Are Your Parents Considering a Reverse Mortgage?

by Craig Romero, Mortgage Analyst,

More and more people are hearing their parents discussing reverse mortgages, and whether or not they should consider one.

If you’ve recently overheard your parents talking about reverse mortgages, or if they’ve discussed it with you directly, you may be wondering what it’s all about and how it affects you. Many people misunderstand what a reverse mortgage is, and what it does and does not do.

Contrary to some beliefs, a mortgage broker who is talking to your parents about a reverse mortgage is not necessarily a wolf in sheep’s clothing trying to steal your parents’ home out from under them.

In actuality, a reverse mortgage may be very beneficial to your parents. The hard work, time and money that your parents put into their home can help them financially in the present. When your parents take out a reverse mortgage, they will receive payment for the equity in their home.

They will not be responsible for making monthly payments on this money, so there is no risk of them losing their home because of missing a monthly payment. The only time the loan becomes due is when your parents are no longer living in the home.

So what does this mean to you? Nothing if your parents decide to sell their home and move out on their own. At that time your parents will pay off the loan from the proceeds of the sale of their home.

However, if you, as an heir, are left the home, there are some responsibilities that you will have to fulfill. If you decide that you want to keep the home, you will need to take out a “forward” or conventional mortgage to pay for the obligation that has been left by the reverse mortgage.

If you decide that you do not want to keep the home, and decide to sell the home, the reverse mortgage will need to be paid out of the proceeds of the home sale. Because of this, when your parents take out a reverse mortgage, it means a reduction in assets that you will inherit.

It is very important to understand that your parents worked hard for their home, and if they are in a situation where they need an additional means of income, a reverse mortgage enables their home to provide that income for them. There are various reverse mortgage programs available, and if you are concerned that your parents may not be utilizing the program that is right for them, you might consider asking them if they would like you to make an appointment with a reverse mortgage counselor with them.

This way you can better understand the decisions they are making, and they will be sure they are finding the program that best suits their needs.

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