(Mar 25, 2023)
However, most people shun a reverse mortgage, believing it may be a future debt trap for the kids. Others courageously sign up, leaving their children happy afterward.
Will a reverse mortgage accumulate to debt and affect your kid’s inheritance? Here we demystify the truth about reverse mortgages.
First off, a quick question;
Do you think your kids require your home as an inheritance when you pass away?
Well, assuming you are the last spouse to pass away. On the day of your funeral, your children and their families drive into the backyard in long-haul trucks full of furniture and households.
After the sad moment of grief, all your children, spouses, and grandchildren move into your home and occupy it permanently.
Does it so happen? Unfortunately not!
After laying the wreath on your grave, your children are not likely to occupy the home. Unless you filed a will with your attorney, they’ll find a realtor and list the property for sale. Soon, they’ll grab the first buyer because they don’t want to keep paying utility bills and property taxes.
Therefore, 99% of parents would wish to give their homes to their kids as inheritance, but 99% of the kids would want to sell it as soon as they have it.
Can Reverse Mortgage Affect Your Children’s Inheritance?
As a parent, you want a good inheritance for your children as a lasting legacy. Meanwhile, you took a reverse mortgage and are wondering how it will affect your children’s inheritance.
Here is a look at how a reverse mortgage can protect your legacy:
1. Eliminates Outstanding Mortgages
If you have an outstanding mortgage on your current home, you can use a reverse home mortgage to clear it.
If you have a mortgage balance of $100,000, you could apply for a reverse lump sum worth $150,000, clear the loan, and use the remaining amount for other expenses. Eventually, your kids will inherit a debt-free home without any high-interest loan rates.
2. Reduces Financial Burden on Your Kids
An existing mortgage requires you to pay monthly costs that eat into your budget. If you have insufficient retirement savings and merely surviving on social security, it consumes a significant amount of your little income. However, if you took a reverse mortgage, it puts more money into your second retirement basket.
In contrast, if you don’t take a reverse mortgage, you won’t pay mortgage charges. However, you’ll still incur property taxes, homeowner association fees, and repair costs that consume your savings. Without adequate savings, you’ll reach out to your kids for financial help.
Therefore, a reverse mortgage cushions you against relying on your children for financial support. Instead, they’ll save more for their future and will require little financial inheritance from you.
3. Eliminates Equity Debt
Many parents worry about the possibility of longevity after taking a reverse mortgage. They think they will live into the 80s and 90s and that the property will barely have any value.
On the contrary, a reverse mortgage has a set of guarantees that protect you and your kids against financial implications. By signing the release of the personal liability form, your financier gives assurance that none of your children, property, or trust is responsible for the loan.
If you pass away, several scenarios take effect;
Paying the Loan
Your kids have the right to sell the property and pay the loan using the proceeds. If the home sells at $500,000 yet the money owed is $100,000, they pocket the remaining $400,00.
Insurance Premium
Sometimes, the home may have a lower value than the amount owed to the financier. You shouldn’t worry about your kids paying the remaining bill. Your home has a secure backup from FHA mortgage insurance. Neither your kids nor your assets will owe the outstanding amount.
Unlike other loans, the home owes the financier and not any person. Your children should claim the mortgage insurance premium fund to have the bill settled.
Reclaiming Ownership
Your kids or grandchildren may wish to reclaim the property. It is possible as long as they pay the mortgage. However, they won’t pay the whole outstanding amount. If there is a huge balance left, they can only pay 95% of the home’s appraised value, and the property reverts.
Reverse Mortgage: Can You Hurt Your Children?
Reverse mortgages not only help you but also secure your inheritance. They help you clear outstanding mortgages, reduce the financial burden on your kids, and eliminate financial implications if you exhaust equity.
The idea that reverse mortgages are financial traps for your children is a myth. Besides living happily, your children can enjoy the remaining equity or reclaim the property if they wish.
If you don’t want to be a financial burden to your kids in retirement yet wouldn’t want them to inherit a huge debt, a reverse mortgage is ideal for you. Do not hesitate to contact a mortgage specialist to verify your eligibility.
(Mar 25, 2023)
