Understanding Reverse Mortgages For Heirs: Questions 1-5

So, your family member is considering a reverse mortgage. What does this mean for them and for you? Well, reverse mortgages involve a lot of detail - too much for a simple blog post. Details (and accuracy) are essential to the team at Arrowhead Title, Inc., however, and we’ve collected the answers to questions most frequently asked about reverse mortgages here for you.

This post answers questions one through five - check back next week to get the answers to the remaining five questions!

1. How Will This Affect Any Inheritance?
While tapping into their equity, your parents’ home may be appreciating in value, which could allow for some equity left at the end of the loan. They are also able to live comfortably without having to depend on family members to support them.

2. What Happens If The Loan Balance Becomes Greater Than The Value Of The Home?
The Home Equity Conversion Mortgage (HECM) is a non-recourse loan, which means that the borrower can never owe more than what the house is worth. As HECM borrowers, your parents pay a mortgage insurance premium to the U.S. Department of Housing and Urban Development (HUD). They, in turn, guarantee that the borrower will never owe more than the value of their home when the loan becomes due and payable.

3. Will The Bank Take Their Home?
No, the bank will not take their home. Throughout the life of the reverse mortgage, your parents will continue to own their home and retain title.

4. How Much Money Will They Owe When The Loan Has To Be Repaid?

Your parents will owe the total amount borrowed, accrued mortgage insurance premiums, accumulated interest, servicing fees, and any other costs and fees financed through the loan amount.

5. When Do My Parents Repay The Loan?
There are three viable options for your parents. They can sell their home to repay the lender and collect the proceeds, choose to reimburse the lender directly from a personal account, or refinance the loan.

These answers should help you get a basic understanding of a how a reverse mortgage could affect your inheritance, but they by no means provide a complete picture of the situation. Check back for our blog next week to find answers to more of your questions, and talk to a lender if you are ready to seriously move forward with a home equity loan.

As always, remember us as your trusted title resource at the Lake of the Ozarks!

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