Reverse mortgage loan: What does it mean for your children and heirs?

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There are many advantages to a reverse mortgage loan for seniors enjoying their golden years. While confident in the decision to establish a more comfortable and secure retirement through this effective retirement planning tool, many borrowers share a specific concern: What about my children or heirs? What will a reverse mortgage loan mean for them?

Because using a reverse mortgage loan to supplement your retirement utilizes some of the equity in the home, there are typically two major concerns expressed by reverse mortgage loan borrowers in regard to their children or heirs:

  1. Could your heirs be responsible for paying back the loan?
  2. Could your children or loved ones will lose their inheritance?

The Truth About Reverse Mortgage Loans for Heirs and Children of Borrowers

In reality, reverse mortgage loans have been structured to protect children and the heirs of seniors, giving them several options for repaying the loans and/or retaining the family home.

  • Loan Payback Options
    • When the remaining surviving borrower or non-borrowing spouse dies, the estate executor may sell the property and use the money to repay the loan, with remaining equity divided amongst the heirs.
    • The family or heirs may decide to keep the home, and will repay or refinance the existing loan with the lender.
  • Heirs are Protected Financially
    • As an FHA-backed, non-recourse loan, the home is the only collateral that the lender may access for loan payoff. If proceeds from the sale of the home do not cover repayment of the entirety of the loan (if the housing market declines, for instance), the FHA pays the difference, not the borrower's heirs.

Make it a Family Decision

In some instances, there is a discrepancy between what a borrower would like to leave to his or her family, and the expectations of those same loved ones as to what their inheritance may entail.

For this reason, it is a wise decision to include children and heirs in the decision and details surrounding a reverse mortgage loan.

By joining together in the research, you will all understand the loan terms, ensuring that everyone is invested in adhering to all requirements. Additionally, knowing that there are options when paying off the loan will provide relief to those who may want to keep ownership within the family – whether they pay off the loan out-of-pocket or pursue a traditional mortgage to refinance the home for purchase.

From providing a stable retirement through supplemental money, to helping you to finance a better retirement, a reverse mortgage loan has a lot to offer to you and your heirs.

Working with your family to fully understand both the financial advantages of a reverse mortgage loan for you, as well as their options when the loan comes due, will help you make an informed decision and eliminate many of the fears and/or objections that may arise.

*If you qualify and your loan is approved, a HECM Reverse Mortgage must pay off your existing mortgage(s). With a HECM/Reverse Mortgage, no monthly mortgage payment is required. Borrowers must continue to pay taxes, insurance, and home maintenance as well as comply with loan terms in order to avoid foreclosure. **Consult your financial advisor. © 2017


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