Over the last few decades, many homeowners thought that applying for a reverse mortgage was something to be done only in the most dire and desperate of times. When reverse mortgage loans started popping up on television screens everywhere years ago, with lenders offering to let a borrower take out a home equity conversion mortgage on their home, many thought it was just too good to be true.
Today, reverse mortgage loans have a much better reputation and any lender can tell any borrower that it is the right thing to do in certain instances. The first thing anyone should need to know, however, is exactly what a reverse mortgage loan is, and then you need to carefully research what a reverse mortgage payoff is as well. In this blog, you’ll find a little about reverse mortgages through the lender, and quite a bit about what parents and their heirs need to know about reverse mortgage payoffs as well.
What is a reverse mortgage?
A reverse mortgage is a loan that can be taken out through a mortgage lender by borrowers that are 62 years of age and older. By definition, it’s a home equity line of credit that helps older citizens be more stable and live better in their golden years, especially as they reach retirement. The amount of money the borrower can get through Hud, FHA, or any other lender is determined by how much is still owed on the home, the age of the borrower, any other outstanding loans, and how much the home is worth.
The main thing that most borrowers worry about with a reverse mortgage home equity loan is the reverse mortgage payoff and what that can mean for their heirs after they have passed on. Below, you’ll find a few things you need to know about reverse mortgage payoffs and how they’ll affect your heirs.
Is it possible for the heir’s parents to lose their home?
After taking out a home equity loan, such as a reverse mortgage, the heir’s parents will be expected to stay in the primary residence, to pay the property taxes, insurance payments, to maintain the home, and any of the homeowners association fees that might be in effect for that property. The home will remain in the borrower’s name for the entire life of the loan, as long as they meet their obligations and stay in the home full-time. If the borrowers fail to meet the obligations, then and only then will the loan on the home come due and they lose the deed to the property.
What happens to the reverse mortgage when the borrower dies?
When the owner of the home passes away, the reverse mortgage is going to come due for payment. There are a few options that heirs can take when it comes to the reverse mortgage payoff, and how they handle it. Those options are listed below.
If the heirs don’t wish to keep the home, they can sell it off to pay back the reverse mortgage loan to the lender. It’s best for each family member that has been included in the will to decide whether to sell the home to pay back the home equity loan so that there are no hard feelings among the family members. Remember, the heirs will be responsible for property taxes, monthly payments, and all upkeep on the property should they choose not to sell to repay the loan.
The heirs can keep the home if they so choose, and all family members agree, by repaying the balance remaining on the loan. They also have the option to refinance the loan and pay 95% of whatever the home is currently valued at. If heirs choose to keep the house, it’s always a good idea to consult a professional to see if it’s indeed worth refinancing, paying off the loan, or it would be better to just sell the home to get out from under it. If the house has declined in value, for example, it might be better to just walk away and let the lender have the home, which is an option if all family members and heirs agree.
Oftentimes, families do not have the flexibility or liquidity to pay off the entire balance of a loan such as this in a short time. With strict payoff time period requirements after the passing of occupants, HCS Equity loans provide the estate time to find permanent financing.
It is possible that the heirs and family members will choose to have nothing to do with the loan and nothing to do with the home as well.
Should your parents take out a reverse mortgage loan?
There are many reasons that an elderly couple would take out a reverse mortgage on the home they love. The choice is theirs and theirs alone, though they may consult their heirs if they want to. For many senior citizens, a reverse mortgage helps because they live on a fixed income. Just make sure that your parents do their research and they should be fine.
These are just a few of the things that heirs should know about reverse mortgages and reverse mortgage payoffs. The more you know, the more you can help your elderly relatives make the right decision for you all.