A major question that may come up if you’re discussing the possibility of taking out a reverse mortgage is: How will it impact your adult children?
The heirs of a reverse mortgage borrower are usually affected to some extent by the loan, and this can be seen in a couple of different ways, both positively and negatively.
Although children may be concerned about how a reverse mortgage may impact their inheritance, the loan can be liberating for all parties involved in the sense that it could prevent parents from needing to rely on their adult children for financial assistance.
How a reverse mortgage impacts inheritance
The most obvious impact, perhaps, is when the loan’s term ends. This happens when you leave your home or pass away, and the loan becomes due and payable.
In most cases, adult children (or other heirs or estate executors) become responsible for paying off the loan. This is usually done by selling the home, and this can become a big point of conversation regarding whether a reverse mortgage is right for you and your family.
Adult children may be unhappy with the prospect of having to sell your home, especially if it’s where they grew up, or if they have any sort of sentimental attachment to it.
They may also be resistant to the idea that much of your home’s value, once sold, will go toward repaying the loan rather than them as an inheritance.
The good news is that selling the home is not the only option. If your adult child or children wish to keep the home once you pass away, they have the option of repaying the reverse mortgage through taking out another mortgage or through independent means.
Another thing to note is that reverse mortgages through the Federal Housing Administration-insured Home Equity Conversion Mortgage (HECM) program are non-recourse loans. This means that even if your loan ends up exceeding your home’s value, you or your children will never have to pay back more than what your house is worth once the loan is due.
Financial stability and independence
If you do end up getting a reverse mortgage, your adult children could be impacted in another way: They might not need to assist you financially.
The economic downturn has helped spur what’s called the Sandwich Generation—millions of middle-aged adults who are being called on to support both their children and their aging parents.
There are nearly 10 million boomers over the age of 50 who are caring for an elderly parent, and a little more than one out of every eight boomers are simultaneously raising a child and providing some form of financial assistance to their parents, according to data from the National Association of Insurance Commissioners.
A reverse mortgage can be the difference between older homeowners needing to rely on their adult children for financial help, or remaining self-sufficient and independent through tapping into their home’s equity.
Is a reverse mortgage right for your family?
Even though your children may not initially embrace the thought of you drawing down your home equity and the impact that will have on their inheritance, they may come to appreciate a reverse mortgage’s benefits: allowing borrowers to use a safe product to tap their own resources in order to remain financially independent.
If you have any other questions about how a reverse mortgage may impact your adult children, or are interested in learning more, don’t hesitate to contact us or call 1-888-888-4834.