Remember, you are spending your childrens’ inheritance when you take out a Reverse Mortgage. And you just might be creating problems for your children after you are gone, beyond what you had expected.
I recently closed a transaction, wherein both parents had passed away. A few years ago, they had taken out a Reverse Mortgage on their property. When it came time to sell, we discovered that after paying closing costs, the family was left with no equity in the house. And beyond that, the house had to sell as a Short Sale. The kids had to pay utilities, legal fees, upkeep on the house during the listing AND remove all the personal property from the residence, which in the case of this sale, was a sizable job!
So although the extra cash for Mom and Pop was helpful, I am certain that they believed their children would still inherit the “estate”. Instead, they inherited a big problem. Living out of the area, numerous trips for clean up, estate sales, yard sales and trips to the Goodwill. It added up to a huge task for this family..
The better route might have been careful financial planning on the part of the parents, or even better, selling the house they could no longer afford and purchasing a smaller, less expensive property. They could have budgeted their cash and left their children a nice little inheritance. At least they could have left them time to grieve the loss of their parents, rather than having to plunge into a huge additional problem.
The Reverse Mortgage can be a true help for some people, but much family planning should accompany this decision. Also, beginning in 2015, the lending requirements for taking out this type of loan has been increased to more stringent financial requirements. My guess is that too many of these loans are being paid back “short”. Our residences simply can’t be expected to solve our financial problems in the future.
“Always Expect the Best”
