Your family is important to you. So when you’re considering a reverse mortgage as a financial tool for a better life, you want to make sure that your children (or heirs in general) will be taken care of. You might have questions like:
- If I’m using the equity in my home for income, will there be anything left to pass on to my children?
- And, will they be responsible for paying off the loan when it comes due?
As a parent, you want to leave your children in a good financial position. A common fear (and myth) about reverse mortgages is that using the equity in your home now will leave little or nothing to pass on to the kids.
Providing for Your Heirs
When you get a reverse mortgage, there are also other approaches you can take to reserving money for your heirs.
- When you get a reverse mortgage, regulations set by the government only allow you to use a portion of your home’s equity – not all of it. That means that a reverse mortgage gives you access to SOME of your home’s equity, while the rest of the equity is retained in your home – this gives your heirs a better opportunity to make more money off of the sale of your home. In addition, just like with any loan, when you get a reverse mortgage you do not have to borrow the full amount of your maximum loan limit. You can choose to retain as much equity in your home as you’d like which also gives your children a better opportunity to make more money off of the sale of your home.
- If you choose to take the full loan amount made available by the reverse mortgage program, many homeowners choose to reserve some of the money they receive in an interest-bearing savings account to pass down to their children. Definitely check with your financial advisor for the best option in achieving your goals!
No Recourse. No Burden.
The most important fact to remember is this: The homeowner’s heirs are not responsible for paying back the loan.
There are two ways in which the loan is paid back:
- If the homeowner moves to an assisted living community or passes away, the loan becomes due six to twelve months following the date you no longer occupy the home. This allows time for the house to sell so the proceeds can be used to pay off the loan. Any profit made on the sale of the house above and beyond the amount owed on your reverse mortgage is then left to your heirs. When the loan comes due, the amount owed will not exceed the sale price of the home.
- Let’s say your house is important to your heirs, and your heirs want to keep the home after you no longer live there. In that case, the loan can be repaid by refinancing the reverse mortgage back into a conventional mortgage loan and the heirs can make the mortgage payments as usual. Or the heirs can simply pay off the loan in full and keep the house.
Another important fact to remember is that reverse mortgages are non-recourse loans. Non-recourse means that if the home is sold and the balance of the reverse mortgage loan is more than the sale price of the home, the Department of Housing and Urban Development (HUD) will not hold the heirs accountable for the difference between the amount owed and the sale price of the home. Any difference is forgiven entirely.
What happens if the heir would like to keep the home? If the heir chooses not to sell the home, then they in essence become the home buyer and they do have to pay off the reverse mortgage loan before taking it into their name.
But now more than ever there is an upside to keeping the home as well. In today’s current housing market with such low home values, the home values of reverse mortgage clients are at their lowest as well. Which means that by the time the reverse mortgage comes due, there is a significantly better chance that the home value will increase substantially, leaving more money for the heirs in the event of a home sale or refinance.
Hopefully this helps clarify exactly how you can still get a reverse mortgage and reserve money for your heirs. Due to the government safeguards that have your best interest in mind, when it comes to managing finances and maintaining a comfortable retirement, government-created reverse mortgages are a win-win situation for you as the homeowner, and your family.
Would you like information specific to your financial situation? Call a reverse mortgage expert today with your questions and concerns – they’ll talk with you over the phone and give you the answers you’re looking for with no obligation. You should also contact your financial advisor for the best advice on how to provide for your heirs in the future.