Is a Reverse Mortgage a Good Decision for Your Mom and Dad?
Should My Mom and Dad Get a Reverse Mortgage?Y ou are referred to as the “Sandwich Generation.” You’ve got kids in or heading for college as well as retired parents. Advice forWherever you look, all you can see is additional Reverse Mortgage Banking Divisionexpenses. (800) 596-3788 Children NMLSR 463089 In the rough economy of the past few years – of Seniorswith home values and retirement savings down, OUR VISION IS: To become the most trustedgovernment benefit programs threatened and and the most reputable reverse mortgage lender tolonger life expectancies – many children of seniors which people and business easily and naturally flow.are concerned about their parents being able to To provide unparalleled value to all who touch our business and to always befinance the remainder of their lives, even if they have relentless in the pursuit of customer education,been diligent about retirement planning. Recent sound decision making and satisfaction.research conducted for NRMLA by Marttila Strategies To deliver peace of mind with every interaction, every time.shows that there is an emerging intergenerational We thankfully serve customers in NC, VA, MD, SC, TN,consensus that your parents should spend whatever GA and FL, and we’re proud to be part of the Gatewaythey have to live as well as they can for as long as Bank & Trust Company family that was acquired in 2009 by Bank of Hampton Roads, a state charteredthey can. U.S. Federal Reserve Member Bank and Member FDIC. The vast majority of America’s seniors have theirwealth in their home equity. And if your parents are www.ReverseMortgageValue.comstruggling to meet their month-to-month expensesor to pay for additional health expenses, tappinginto that equity may be the best solution for all ofyou. A Reverse Mortgage is a financial product that As a member of the National Reverse Mortgage Lendersallows them to do just that. Association, your Gateway representative is required to abide by a Code of Ethics & Professional Responsibility Whether or not a reverse mortgage is the right and has pledged to serve you with integrity.financial option for your parents is a very personaldecision and based on many factors. In most cases,your parents will discuss this option with you before This brochure is produced bymaking their decision. You want to be prepared to National Reverse Mortgage Lenders Associationgive them the best advice. Here are some questions 1400 16th Street, NW, Suite 420you most likely will want answered: Washington, DC 20036
What is a reverse mortgage? The borrower can also use more than one of these ! Taxes and Insurance: Your parents are required toA reverse mortgage is a loan available to people over options, for example, take part of the proceeds as a remain current on their real estate taxes, home62 years of age that enables borrowers to convert part lump sum and leave the balance in a line of credit. insurance, and, if applicable, condo fees or theyof the equity in their home into cash. are susceptible to default. The loan is called a reverse mortgage because How much will the loan cost my parents? ! Property Condition: Your parents are responsiblethe traditional mortgage payback stream is reversed. Closing costs can be paid out of the loan proceeds. This for completing mandatory repairs and maintainingInstead of making monthly payments to a lender means a borrower incurs very little out-of-pocket expense the condition of their property.(as with a traditional mortgage), the lender makes to get a reverse mortgage. The only out-of-pocketpayments to the borrower. expenses you may incur are for counseling and the ! Rights of Non-Borrower Residents at Time of appraisal, which together add up to a few hundred dollars. Loan Termination: If there is a non-borrowerWhat do people use reverse mortgages for? The loan balance is comprised of the amount resident (living in the home but not on title), it’sReverse mortgages were conceived as a means to borrowed, plus fees and interest. The loan balance important that you understand what happenshelp people in or near retirement who have limited grows as the borrower continues to live in the home. In when the owner on title permanently vacatesincome use the money they have put into their home other words, when the borrower sells or leaves the the property, either by death or move out, andto pay off debts (including traditional mortgages), house, he or she may owe more than originally bor- the loan becomes due and payable. Eithercover basic monthly living expenses or pay for health rowed. Look at it this way: A traditional mortgage is a arrangements need to be made ahead of timecare. There is no restriction on how a borrower may balloon full of air that loses some air and gets smaller to pay back the loan when it becomes due, oruse their reverse mortgage proceeds. each time a payment is made. A reverse mortgage is an the property will have to be vacated. empty balloon that grows larger as time passes.Will a reverse mortgage increase my But my parents want to downsize. Howparents’ monthly expenses? can a reverse mortgage help them? When my parents move or die and theNo. Borrowers are not required to pay back the loan While the typical retiree uses a reverse mortgage to balance is more than the value of the home,until the home is sold or otherwise vacated. As long as eliminate debts, pay for healthcare and/or cover daily am I then responsible?they live in the home, they are not required to make any living expenses, a growing segment of the senior No matter how large the loan balance, your parents ormonthly payments towards the loan balance, but they population is using it to purchase a home that better you never have to pay more than the appraised valuemust remain current on tax and insurance payments. suits their needs. of the home or the sale price. This feature is referred The advantage of using what is known as a to as non-recourse. If the loan balance exceeds theIf my parents take a reverse mortgage, HECM for Purchase is that the new home is purchased appraised value of the home, then the federaldoes the bank then own their home? outright, using funds from the sale of the old home, government absorbs that loss. The government paysNo. With a reverse mortgage, the borrower always private savings, gift money and other sources of for it with proceeds from its insurance fund, which theretains title to or ownership of the home. The lender income, which are then combined with the reverse borrower pays into on a monthly basis.never, at any point, owns the home even after the last mortgage proceeds. This home buying process leavessurviving spouse permanently vacates the property. the homeowner with no monthly mortgage payments. If my parents get a reverse mortgage, whatHow much money can my parents expect? are their responsibilities? How do my parents learn enough aboutThe amount of funds received depends on the age of ! Primary lien: A reverse mortgage must be the reverse mortgages to make an informedthe youngest borrower, the value of the home, the primary lien on a home. Any prior mortgage must be evaluation and decision?interest rate and upfront costs. The older the borrower paid in full to acquire the reverse mortgage. (Reverse Consult with your Gateway reverse mortgage banker.is, the more proceeds he or she can receive. mortgage proceeds can be used for this purpose.) We encourage clients to also consider advice from The funds can be delivered to the borrower as a other trusted advisers like their financial planner,lump sum, as a line of credit, or as a fixed monthly ! Occupancy requirements: The property used as estate/tax planning attorney and/or loved ones. Wepayment for a specific amount of time or for as long collateral for the reverse mortgage must be your are sensitive to the fact that utilizing home equityas the loan is outstanding. parents’ primary residence. while remaining in your home is a weighty decision.