Reverse Mortgage Loans Explained: A Family Perspective

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Reverse Mortgage Loans Explained: A Family Perspective

When considering the option of a reverse mortgage, it is often a decision that is not made by one individual, but shared and discussed within the family. Children and caregivers often help their family members to make a sound choice for their retirement future. Furthermore, many retirees prefer to remain in their homes as part of their retirement.

Fortunately, reverse mortgages are able to give our family members the ability to retain their financial independence, by accessing the wealth they have in their homes. Meanwhile, they are able to live comfortably in their own homes, on their own terms.

HOW REVERSE MORTGAGES WORK

A reverse mortgage is different from a traditional forward mortgage. A reverse mortgage’s simplest definition is a loan that takes some of the equity in a home and converts it into cash. It is then disbursed to the borrower in a lump sum, monthly payments, line of credit, or a combination of these three. Meanwhile, the borrower continues to retain ownership and live in the home. Learn more about ‘How a Reverse Mortgage Works‘.

HOW THE LOAN IS REPAID

The borrower must continue to be responsible for property taxes, homeowner’s insurance, basic home maintenance, and compliance with any other loan terms.  But they do not have to make any monthly loan payments, as the loan is repaid in one lump sum when the last borrower leaves the home and the home is sold.

WHAT ABOUT INHERITANCE?

Usually, once the last borrower leaves the home, it is sold to repay the loan, and the remaining equity is distributed to reverse mortgage heirs. Because the reverse mortgage is a non-recourse loan, the home is the only asset that can be accessed to repay it. This means that in the event that the sale of the home does not cover the entire loan balance, then the Federal Housing Administration (FHA) pays the difference, not the borrower’s family.

However, if the borrower’s family or the heirs of the estate prefer to keep the home, then they may instead repay the loan. There are many options available to these heirs in order to repay the loan if they so choose, such as refinancing.

As loved ones of our parents, we may be asked to go through the loan process alongside them. American Advisors Group is proud to release two new commercials that feature how families decide on a reverse mortgage together (see the video links below). Involvement is encouraged so that the entire family knows how a reverse mortgage works and is involved throughout the process.

Most importantly, talk to a licensed professional who will help you further explore your family members’ financial situation, help you formulate a plan for a how a fulfilling retirement can be achieved, and will give you information and facts to help your parents take advantage of all the benefits of a reverse mortgage. This may be one of the most important financial decisions in their retirement, and a reverse mortgage explained thoroughly can make everything clearer to you and your entire family.

Watch these videos for caregivers and loved ones on our official YouTube channel.

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