Owning a home is one of the important American dreams of many people. Naturally, talking with ageing loved ones about liquidating their home can be challenging, especially if they have spent their entire life working hard and building it penny by penny, or have had it passed down through generations.
Many people have zero or incomplete knowledge regarding reverse mortgages. Thus, to introduce your family to reverse mortgages, you must patiently acquaint them with the idea, educate them about the risks and benefits, and discuss their options towards ageing-in-place before helping them to make a decision.
We have some tips on how you can talk to your loved ones about reverse mortgages and dispel any misconceptions they may have about using the home as a way to maintain a quality life while staying in the home.
Introducing the Topic Tactfully
Asking elders to mortgage their house during family dinners involves the risk of choking hazards. Jokes aside, it’s possible that you may face pushback from your elders if you ask them to leverage their home. It is better to chat with them about things that will make them think about their financial position and plans.
Ask them if they would like to go on a month-long getaway vacation, suggest renovating the house to make it more senior-friendly, or building a backyard plant nursery so they can enjoy gardening.
You can also talk to them about medical issues that are limited or are not covered by insurance. Remind them that having extra funds can let them participate more in the lives of others and age gracefully at home longer vs. a care facility.
A house can’t be called an asset if the owner is not planning to liquidate it or exchange it for other assets. Taking the topic of assets, liabilities, and financial planning further, you can casually discuss reverse mortgages and other financial instruments that can fortify their financial health for the short and long-term.
Educating Your Loved Ones About Reverse Mortgage
After piquing their interest with the idea of a “reverse mortgage,” introduce them to the basics of how it works, along with dispelling misconceptions they may have developed over time. In simple terms:
What is a reverse mortgage?
A reverse mortgage is a loan a senior person can take against their home’s value. The minimum age to apply for a reverse mortgage is now 55 years.
When the loan has to be repaid?
The loan is due when:
- The last surviving borrower or their eligible non-borrowing spouse passes away●
- The borrower sells the property
- The borrower doesn’t use it as a principal residence for more than a year
- The borrower decides to repay the loan in full to take back ownership of the home.
Borrowers can pay the interest monthly to maintain a constant loan balance or accrue the interest and principal.
Talk About the Benefits of Reverse Mortgage
The most obvious benefit is the option to either receive an upfront cash payment, monthly recurring payments, a line of credit, or a combination of these.
The payment received is basically a loan. Therefore, the borrower will not pay tax on it.
Another benefit is that the borrower and their heirs will never owe more than 95% of the home’s appraised value.
Taking a reverse mortgage is the best option for ensuring a fixed income. It will grant a fulfilling, comfortable, and secure life after your ageing loved ones retire.
Explain the Associated Risks
Taking equity from one’s beloved home is a scary thought. A lot of doubts pop up upon hearing the word “mortgage.” Thus, explain what they are getting into so they can diligently decide if it’s for them.
Here are a few pointers that can get you started:
- The bank can’t foreclose the home
In a regular mortgage, the bank can foreclose the home if the borrower fails to make monthly payments. However, in a reverse mortgage, the borrower will hold rights to his property until they pass away or sell the home.
- The house doesn’t have to debt-free
Eligible people can get a reverse mortgage even if they have taken a regular (forward) mortgage or a home loan. The chief condition is that the reverse mortgage is put in the first lien position, i.e., the creditors of the reverse mortgage are settled first.
- Virtually no defaulting risk
As the borrower can’t owe any more than the value of their property to the lender, there’s low default risk.
As long as the borrower fulfils their financial obligations, such as paying property tax and homeowners insurance premiums, and maintains the value of their home, they can live stress-free.
The eligible non-borrowing spouse who survives the borrower can occupy the residence for as long as they wish.
The non-eligible non-borrowing spouse or the heirs won’t have to pay more than 95 percent of the appraised value. Thus, the reverse mortgage can be settled by selling the property. In case the property is valued higher than the due amount, the lender can deduct the loan amount and distribute the remaining money among the spouse and heirs.
Heirs and non-eligible spouses can also repay the due amount by other means if they wish to keep the house.
Consult a Reverse Mortgage Advisor
You can visit the websites of many reverse mortgage lenders to research reverse mortgages. However, a reverse mortgage advisor can analyse the borrower’s financial situation to give personalised suggestions. An advisor can:
- Analyse the cash inflow and outflow streams of the borrower
- Compare the policies of different reverse mortgage companies·
- Analyse existing loans of the borrowers and explain their impact on the reverse mortgage·
- Suggest a repayment term that makes budgeting easier
- Answer any question you may have related to taxation
- Help the borrower and their spouse achieve financial security
- Protect you against scams
- Answer many other doubts of yours that will arise when researching reverse mortgages
Knowledge is important. If you think a reverse mortgage will make your elder loved one’s life easier, let them know about it.
It’s a crucial discussion, so let them discuss it with their spouse, friends, and reverse mortgage advisor before coming to a decision. If you are their heir, tell them whether you want to inherit their home or buy a property elsewhere.
When the time is due, whether in a week or in a year, they will make a decision. Just be ready to support them whenever they have doubts.
Feel free to contact us if you are looking for reverse mortgage advice for your family and loved ones. Call us today!