Common Concerns of Adult Children

Will the bank take their home? As long as your parents continue to meet loan guidelines, they will keep living in the home. The owner must, however, keep their property taxes current, maintain homeowner’s insurance, and keep the house in good repair. The loan could become due and payable if you fail to do these things. Your parents will continue to own their home and retain title as long as they follow the loan guidelines and requirements, just like a traditional mortgage borrower.

How much money will they owe when the loan has to be repaid? Your parents will owe the total amount borrowed (up to the value of the home), accrued mortgage insurance premiums, accumulated interest, servicing fees, and any other costs and fees financed through the loan amount.

How do my parents repay the loan? There are three viable options for your parents. They can sell their home to repay the lender and collect any leftover proceeds, choose to reimburse the lender directly from a personal account, or refinance the loan.

What happens to the equity if my parents or I decide to repay the loan by selling the house? Your parents can choose from three options. To repay the lender, they can sell their home and collect any leftover proceeds, choose to repay the lender directly from their personal accounts, or refinance the loan.

What happens to my mom and dad’s house if they move into a senior care facility? As soon as the last borrower moves out of his or her home permanently, the reverse mortgage becomes due and payable. If you move into a nursing home, sell your house, pass away, or move in with your children.

What happens if the loan balance becomes greater than the value of the home? As a non-recourse loan, the Home Equity Conversion Mortgage (HECM) is secured by only the home and the property. As HECM borrowers, your parents are responsible for paying mortgage insurance premiums to the Department of Housing and Urban Development (HUD). This insurance protects the borrower in that they will not be responsible for more than the value of their home when the loan becomes due and payable. Heirs wishing to retain the home after the loan becomes due may choose to pay the lesser of the (1) loan balance or, (2) 95% of the home’s appraised value, less any closing costs and real estate commissions.

What are the risks my parents would be taking in receiving a reverse mortgage? A reverse mortgage typically doesn’t affect regular Social Security or Medicare benefits. To find out if it impacts other federal or state assistance or medical programs, contact your reverse mortgage lender, tax attorney, or counseling agency. A reverse mortgage loan is secured by a mortgage on the home and failure to comply with loan terms could result in foreclosure. All risks should be identified and discussed with your own attorney and/or financial advisor.

Are there restrictions on how my parents spend their money? Your parents can spend their money any way they choose. Borrowers have often used their reverse mortgage to pay off other debts, make home improvements, go on vacations, replace an aging vehicle, or eliminate an existing mortgage payment (the existing mortgage debt is refinanced into the reverse mortgage loan and your parents must continue paying their property taxes current, applicable HOA fees, and keep the home in good repair).

Is there any information that provides what all of the fees will be? The lender is required to provide your parents with the Total Annual Loan Cost, or “TALC” disclosure, which is required by the Federal Reserve Board. The TALC displays the total transaction costs over the projected life of the loan, which will allow your parents to see all costs related to the reverse mortgage.