Reverse Mortgages - Information and Advice

"How a reverse mortgage works and it's effect on home equity."

Are Your Parents Considering a Reverse Mortgage?

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 a reverse mortgage is all about and how it affects you.

Many people misunderstand what a reverse mortgage is, and what it does and does not do.

How do reverse mortgages work?

A reverse mortgage is simply a method to draw upon the equity built up in a home. That home equity is drawn down in the form of monthly payments to the owner, somewhat like an annuity. At the end, the reverse mortgage is ultimately paid off by the sale of the home or by the heirs taking out a new conventional home loan.

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. There is no liability during the annuity phase of monthly equity payouts.

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 receive payment for the equity in their home that they worked so hard to create.

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. 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 qualified reverse mortgage broker 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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Written by Craig Romero/Mortgage Analyst

Discover how to quickly build a minimum of $40,000 worth of home equity and pay your mortgage off in 10 years or less without making biweekly mortgage payments. Visit: www.wisemortgageinfo.com

Related Pages

Reverse Mortgage - Information on how a reverse mortgage works - Tips for seniors on how to get the best reverse mortgage terms and avoid scams.

Reverse Mortgage Advice - Information on reverse mortgages, who qualifies for one, and how the whole process works.

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