Q: I made a big mistake when I asked my parents about their plan to get a reverse mortgage. I asked what it was and how it worked and they got really mad and told me it's not my business. Rather than stir up more trouble, I figured I would ask here. Thanks.
A: A reverse mortgage allows homeowners age 62 and above to take cash from home equity to pay off any existing mortgage and to use available funds as they wish. No payments are required on a reverse mortgage, but there are closing costs involved. The U.S. Department of Housing and Urban Development (HUD) insures mortgage lenders against losses on most reverse mortgages (HUD-backed reverse mortgages are called Home Equity Conversion Mortgages, or HECMs), and borrowers are required to pay for this insurance as well as property taxes, hazard insurance and other property-related costs. In addition, HUD requires homeowners who choose HECM products to attend reverse mortgage counseling sessions before they apply for their loan. If they stop being offended, you might be able to attend with them.
Reverse mortgage rules require borrowers to occupy the mortgaged home as their primary residence. When the last borrower leaves the home, any amounts due the reverse mortgage lender must be paid in full. This is typically done through a sale or refinance of the home to another type of mortgage.
A reverse mortgage may reduce the value of your parents' estate, as would any type of mortgage against the property. This can be a tricky topic to discuss with your parents, but approaching it in a general sense of learning about how a reverse mortgage works may open doors for further discussion.
When looking for any type of mortgage, it's a good idea to request a few reverse mortgage quotes and compare the information received. LendingTree's network of reverse mortgage lenders can provide quotes and discuss how or if a reverse mortgage can help your parents meet their personal and financial goals. Your parents may also want to consult an attorney or estate planner for more information.