Is a reverse mortgage a good idea for my parents?
by Francine Huff
Is a Reverse Mortgage a Good Idea for My Parents?
With all of the recent attention given to reverse mortgages, you may be wondering if it makes sense for your elderly parents to apply for one of these loans. Under the right circumstances a reverse mortgage can be a wonderful financial tool that can provide another source of income for folks over 62. But there are pros and cons to taking out a reverse mortgage that need to be considered very carefully.
First, adult children should always consult with their parents before making financial decisions for them unless their parents are physically and/or mentally unable to be involved. If you are the authorized legal representative for your aging parents, you can request a reverse mortgage counseling session. Counseling allows you to take a look at your parents' overall finances to decide whether a reverse mortgage is a smart option.
Why Consider a Reverse Mortgage?
Reverse mortgages are paid as a lump sum of cash, through regular payments, or a combination of both. Your parents have the option of choosing how they want to receive their money, as well as how to spend it. Reverse mortgages are popular because the money received doesn't have to be repaid until a homeowner dies or moves. These loans also typically don't require income or credit checks.
When Are Reverse Mortgages a Good Option?
Some folks are better candidates for using a reverse mortgage to tap into home equity than others. Your parents may see real benefits from a reverse mortgage if they:
- Own their home free and clear or have a low mortgage balance
- Are over 70, since the older they are the more money they can receive
- Need extra cash to help pay medical costs, credit card debt, or other bills
- Want to use the proceeds from a revere mortgage to downsize to a smaller home
When Are Reverse Mortgages a Bad Option?
Don't jump on the reverse mortgage bandwagon without considering how a loan may impact the overall finances of your aging parents. A reverse mortgage may not be a good idea if:
- Your parents' home has lost a lot of equity during the housing downturn since this can lower the amount of an appraisal
- Your parents aren't that old and really don't need the money right now. Waiting a few years means they should be able to qualify for a larger payout when they apply for a reverse mortgage.
- The mortgage lender pressures them to purchase annuities or other expensive financial products
- Your parents plan to move from their home in a few years. Money received from the reverse mortgage typically has to be paid back when they leave their home.
- Your parents want to leave their home to you as an inheritance
Being the caregiver for aging parents isn't easy. In addition to knowing where to go for good medical care, it's important to know where to turn for help with important financial decisions. A reverse mortgage is just one of the tools that may be able to help manage your parents' finances more effectively.