Options for homeowners who want their children to have their home when they pass away
One of the biggest benefits to a Reverse Mortgage is the fact that the borrowers’ heirs do not have to repay the loan. That is, unless they wish to keep the home. So what if a homeowner wants their heir(s) to have the home after they pass away? Would a Reverse Mortgage be a wise choice? Possibly not.
How a Reverse Mortgage is Repaid
When a Reverse Mortgage borrower passes away, or simply no longer uses the home as their primary residence, the loan becomes due. In most cases, the borrowers’ heirs or estate sell the home and the proceeds of the sale are used to pay off the Reverse Mortgage balance. If the heirs want to keep the home, they will then be responsible for settling the loan balance.
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Reverse Mortgage Alternatives
If a homeowner wants his or her heirs to have their home after they no longer live in it, a Reverse Mortgage may not be the best solution. Instead, consider one of the following options:
Home Equity Line of Credit (HELOC) – A HELOC is a line of credit that allows the homeowner to draw cash from their equity as needed. Heirs could still be responsible for paying off any debt if they wish to keep the home; however, instead of having to pay off an entire mortgage, they would only be responsible for paying off the amount of money that was drawn from the line of credit. For example, if the homeowners borrowed $10,000 against their home equity, the heirs would likely only be responsible for repaying that amount, plus any interest and/or fees. That would be more surmountable than having to repay a $150,000 Reverse Mortgage loan.
Refinance – If your primary purpose for getting a Reverse Mortgage is to help you lower your living costs, a less risky alternative could be to simply refinance. If mortgage rates have dropped considerably since you took out your last mortgage, refinancing to the current rate could significantly cut your monthly payments. Keep in mind however, any mortgage debt tied to the property will likely be “inherited” by your heirs if they choose to keep the home. The benefit of refinancing is that the heirs will be responsible for continuing with the lower monthly mortgage payments, rather than having to pay off an entire Reverse Mortgage in one fell swoop.
Sell the Home to Your Heirs – If you and your heirs want them to have the home, you may want to consider going ahead and transferring full ownership of the property to them before your death. You can sell the home to your heir(s) at a reasonable price that works for both them and you, and you could even continue living in the home as a renter. That way, if you pass away or need to move to a nursing home or assisted living facility, you’ll know your heirs already have ownership of the property.
For example, let’s say you owe $100,000 on a home that is worth $200,000. You could sell the home to your heirs for what you owe, automatically giving them $100,000 in equity. If you could then rent the home from them at a rate that is acceptable to all parties, you could enjoy continuing to live in your home while your heirs continue to build equity in the home.
Where to Learn More
Feel free to explore our Reverse Mortgage Learning Center to find out if a Reverse Mortgage is right for you. If you would like to speak with a Reverse Mortgage lending professional, give us a call at (855) 367-4326.