Should you do a HECM Reverse Mortgage or leave an inheritance?

Leaving home as inheritance with reverse mortgage?“I want to leave an inheritance for my kids.”  “I want my son to get my house.”  “The reverse mortgage will eat up my inheritance.”  “The reverse mortgage isn’t good for the kids.”  “The reverse mortgage should only be done with those who don’t have children.” These are statements that are often seen or heard when a reverse mortgage is mentioned.

My questions are, do the children have the money needed to cover the costs of mom’s or dad’s needs today if they don’t have the money and don’t do a reverse mortgage?  Will they have the funds in the future when there are needs?  Do the children even want the house?

Even financial planners helping their clients have funds for planning their long-term needs who suggest exploring a reverse mortgage hear, “I want to leave the house to my children.”

Let me share a story.  As I always do, I have a discussion on the needs and desires of one who is considering a Home Equity Conversion Mortgage (HECM) or a reverse mortgage.  In this one particular situation, the woman, Chris*, was living off her Social Security income of about $600 a month.  She needed new teeth, new glasses, some new clothes, and her home needed some repairs.  She loved going to plays but couldn’t even afford the community plays for $5 to $10.  Doing a reverse mortgage would help Chris “live with more” so she completed the application.

Son concerned about inheritance with reverse mortgageA few days later she called to say she decided not to proceed. When I inquired why the change, she replied that her son didn’t want her to do it.  After some exploratory questions as to why, she said her son wanted her home after she had passed away so he could rent it out and make money.

How outrageous is this?

Was she really going to do without all the things she needed as basic necessities not to mention just being able to have some money for a few extra things to enjoy life while she’s still alive just so her son could make money off her house after she passed away?

While I was astounded by this response, I kept my tongue in check and calmly asked her if her son was going to provide the money she needed now or was she going to do without the glasses, teeth, clothes, and home repairs so her son could benefit after she passed away.  She said, “Of course not, he doesn’t have the money to help me.”

In another situation, the daughter was living with her parents, Gale and Glen*, helping them around the house and with their care.  The couple decided to do the reverse mortgage to pay off their current mortgage because when something happened to one of them the other could not afford to make the monthly mortgage payments on their current conventional mortgage.

The daughter was concerned about where she’s going to live when both of her parents are no longer in the home as their primary residence.  Even without her parents doing the reverse mortgage, with their current mortgage in place, she would have to figure out a way to pay off that mortgage to remain in the home.

  • Is living from Social Security check to Social Security check just to get by and maybe doing without some of the things in life that give dignity such as having lunch with friends, getting one’s hair done, or having cable TV really a good option over a reverse mortgage? 
  • Maybe you have some savings, funds in retirement plans, is it enough to cover your long-term care needs?
  • Why should one be more concerned about leaving an inheritance than having their independence and control of their life and living comfortably?
  • Why do children think they deserve an inheritance rather than their parents being able to live comfortably, have security, independence, dignity and control of their lives? 
  • Aren’t these the same things every one of us wants? 
  • Why would one deny your parents of living life comfortably?

Even if one’s children are able to help their parents financially today, do their parents really want to be dependent on their children?  What happens if “life happens” to their children, they lose their job, get sick, have to come up with money to pay for their kid’s college, etc. and they no longer have the funds to help their parents?  This can impact everyone!

Reverse Mortgage provides funds for enjoying lifeMaybe one doesn’t have immediate needs for funds as Chris did.  In planning for the future, using the reverse mortgage line of credit that grows over time, could be beneficial to provide funds when those needs arise.  The reverse mortgage funds could mean one doesn’t have to tap their other retirement funds or they could supplement them.

What if one needs home care or has medical expenses?  Why should one do without needed care so they can leave an inheritance?  Why do children think they should receive an inheritance over their parents having the dignity of paying for their own care and expenses?

If one moves into senior housing, whether independent living, assisted living or skilled care, does one really think there will be funds left to leave for an inheritance?  Or will the children have to help pay for the senior housing?  Whether private pay or services paid by Medicaid or other government funds, there may not be an inheritance.

And whose money is it anyway?  Who should benefit from the use of funds or assets that the senior worked so hard for?  Shouldn’t the money and assets be used for whatever one’s parents need or want?

Many seniors say, “My kids are doing better than I am.”  This is often the case but even if this isn’t the case, why should one be concerned about leaving money after their gone?

A reverse mortgage is a loan against one’s home to allow seniors 62 and older to remain in their home with security, independence, dignity and control.  The most common, and only one available in Minnesota, is the FHA insured HECM.  The reverse mortgage offers many benefits including:

  • No monthly mortgage payment requirements (one must abide by the terms of the loan including paying paying property taxes, keeping hazard insurance on the home and abiding by the terms of the loan)
  • Income or credit are not used to qualify for a low interest rate.
  • The loan is due and payable when the home is no longer the primary residence of the borrower(s) or on the 150th birthday of the youngest borrower.
  • As a non-recourse loan, if the loan balance is higher than what the home can be sold for at fair market value, the borrower or their estate are not responsible for the difference.  And the opposite is true too, if the loan balance is lower than what the home is sold for, the borrower or their estate receives the difference.
  • The borrower remains the owner of the home with the title staying in the name of the borrower(s).

In addition, the reverse mortgage has many protections, likely more than any other financial product or service.  To learn what these are read, “You Need To Know Reverse Mortgage Borrowers Are Highly Protected.”

I’m happy to say Chris did proceed with her reverse mortgage.  And for years afterwards I received at least one call, sometimes a couple calls, a year saying she’s so relieved to have the money to meet her needs.  Besides the initial needs, she has had funds to fix her car when it needed some repairs, to cover some medical expenses and she had funds to take a trip to attend a family wedding.  And yes, she’s even enjoying the community plays every now and then.

Once Chris passes away her son will have the opportunity to keep the home by obtaining a conventional mortgage to pay off the reverse mortgage.  If he’s renting the property out, the rent payments he will be receiving will cover the mortgage payment – he could still make money if priced accordingly.  In the meantime Chris is remaining in her home with the security, independence, dignity and control she deserves and enjoying her life.

For Gale and Glen’s daughter when they are no longer in the home, if she wants to stay in that home, she would need financing to pay off her parent’s reverse mortgage.  This may be done by obtaining conventional loan, a reverse mortgage if she qualifies, or from funds as a beneficiary of a life insurance policy or other retirement programs.

So what do you think is better?  Doing without today just so a child can have an inheritance or the senior being able to fulfill one’s needs and wants while they are alive?

Contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.

When you decide to do a reverse mortgage make sure you work with a local originator or loan officer who specializes in reverse mortgages, has years of experience and knowledge in reverse mortgages in your state, preferably holds the Certified Reverse mortgage Professional (CRMP) designation, licensed in your state, is a broker, working with various lenders, and is willing to meet with you to review the details, before the application, during the application and at closing.

I would caution about working with an originator from another state who is mailing all the documentation, including the application and not “meeting” with you to explain and review what you are signing. (The lenders in another state may send a notary for application and/or closing – they are not licensed mortgage brokers so can NOT answer questions, they are there only to verify your signature.)  Ask for references and find out if the loan originator will be there for you even after the loan has closed.  If you feel pressured, call another originator.  You can find a list of questions to ask an originator at our webite:

To ensure that borrowers understand reverse mortgages HUD requires anyone doing a reverse mortgage to complete counseling through a third-party.  They will review the program and discuss other options that may be available.

*Borrowers’ situations are real; borrowers’ names changed to protect their identity.

© 2017 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

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