Are Reverse Mortgages the Heir's Responsibility?

The difficult economic times of the past few years have many adults concerned about the ability of their aging parents, even the most diligent of savers and planners, to finance the rest of their lives. A prevailing thought is that it might be wise for them to spend what they have to live out their remaining years for as long and as well as they possibly can.
The overwhelming majority of the nation’s seniors have most of their wealth in their home equity. Tapping into that equity, if they’re struggling to meet their monthly expenses, might be the best solution not only for them but also for their heirs.
A reverse mortgage might just be the financial tool that realizes this. If you’re an adult with an aging parent, it’s something you might want to consider; before you do, however, be prepared.
The following issues should be taken into account:
What Exactly Is a Reverse Mortgage?
It is a home loan available to seniors who are at least 62 years old and have at least 40 percent equity in their homes. They can take out a loan as any of the following: a lump sum, a line of credit, a monthly payment, or even any combination of the above. There are no payments required as long as the homeowners continue living in the home. Interest accrues on the principal and the entire balance comes due when any of the following happens: the homeowners pass away, sell the home, or move.
The History of the Reverse Mortgage
Congress passed legislation in 1987 that established FHA reverse mortgages as a demo project, and two years later, the first loans of this kind were offered. In 1998, the program became national and permanent. Since 2007, when the recession began, the only national, readily available reverse mortgage has been the Although reverse mortgages can be issued by any entity or person, the only reverse mortgage readily available nationwide since the start of the 2007 recession has been the FHA Home Equity Conversion Mortgage (HECM).
Repayment
According to the law, the reverse mortgage is a non-recourse one, meaning that the mortgaged property or home is the only required source of loan repayment. No one – not the borrowers, the borrowers’ children, or any other heirs – is responsible for repayment. Should the house not appreciate sufficiently to cover the full cost of repayment, the difference will be paid through mortgage insurance. After repayment of the loan through the sale of the home, though, if there is any leftover home equity, the borrowers’ heirs are the beneficiaries. Heirs can also choose not to sell the house, though this means that they must repay the loan fully, even if it’s through some other source.
Advantages
The advantages are fairly clear. First, the borrowers can live off the equity in their homes without having to make loan payments, regardless of whether the home’s value dips or rises. Second, the borrowers’ heirs can still be inherit the home, choosing to keep it and repay the loan, or sell it and pocket any remaining equity after loan repayment. Third, there is less worry how the borrowers – that is, the aging parents – can support themselves in their twilight years.
Disadvantages
As mentioned, the interest on a reverse mortgage compounds on the principal, which means that the house might not appreciate sufficiently to fully repay the loan. This means that the borrowers may have nothing to bequeath after the sale of the house. There is also an appraisal fee when taking out the loan, but it’s usually no more than several hundred dollars.
For more information so as to make the best and most informed decision possible, please contact – or have the borrower in question do so – a reverse mortgage lender, preferably one that is a member of the National Reverse Mortgage Lenders Association.