What to Do if You Need to Pay Off Your Parents’ Reverse Mortgage Loan
If your parents have taken out a reverse mortgage, you may be wondering what happens if something happens to them and the loan comes due. The good news is that adult children can take action to pay off their parent’s reverse mortgage loan. This blog post will explain the different ways you can help your parents pay off their reverse mortgage loan so they can keep the house they love.
Understanding Reverse Mortgages
Firstly, it is important to understand how a reverse mortgage works. A reverse mortgage is a type of home loan for seniors over 62 years old who own their home. It gives them access to the equity in their home without having to make any monthly payments for as long as they live there.
The loan is not due for repayment until the last borrower dies, leaves the home, or fails to maintain the property requirements. When any of those things happen, the loan comes due.
It is important to know the facts of a non-recourse loan. Unlike other loans, when it comes to a reverse mortgage, you are not liable for any shortfall between the sale price of the home and the amount owed on the loan. If a person borrows against their house with a reverse mortgage but then finds they owe more money than they can receive from selling it, they or their parents will not have to pay the difference - this type of loan is covered under ‘non-recourse’ laws.
Those considering a reverse mortgage should absolutely understand how these intricacies work to ensure protection and peace of mind over any financial burden.
Options for Paying Off Your Parent’s Reverse Mortgage Loan
Settling the debt on a mortgage when there is no other co-borrower living in and benefiting from the home equity can be difficult.
In such cases, families are often left with four main options to resolve the debt:
-selling the house to pay off the mortgage;
-refinancing it into someone else's name, such as an heir;
-paying cash to settle the balance of the loan;
-and giving the house back to the lender as payment for the debt.
Depending on several factors including your family's financial situation and what assets are remaining, any one of these routes could provide a solution to resolving your loved one's end-of-life mortgage debt.
Selling Your Parent's Home
Finally, if neither refinancing nor taking out a home equity loan is an option for you, then selling your parent’s home may be necessary in order to pay off their reverse mortgage loan before it comes due. Selling can be an emotional process so it is important that you consult with real estate professionals who understand all aspects of selling a home before making any decisions.
Additionally, keep in mind that depending on how much time has passed since your parents took out their reverse mortgage, they could owe more than their house is worth which means selling may not cover all costs associated with paying off the balance of their reverse mortgage loan.
Refinance Into Another Loan
If you need more money than what you have available in savings, you can consider taking out another loan—either from a bank or private lender—to cover the cost of paying off your parent’s reverse mortgage. Make sure that you understand all of the terms and conditions before signing any agreement so that you know exactly what you're getting into.
Additionally, another option is for you and/or other siblings to become co-borrowers on the existing loan which would allow them access more funds from it or possibly extend its term so that monthly payments are made more manageable.
Use Your Own Savings
If you have enough money saved up and you want to keep your parent’s home in the family, you can use your own funds to pay off the reverse mortgage. This is probably the simplest option but it may not be feasible if you don't have enough money saved up or if your finances aren't in good shape.
Giving the House Back to the Bank
When it comes to repaying a reverse mortgage, you have up to 12 months to satisfy the debt once it becomes due. The repayment timeline that is given to you is incremental and must be approved by your servicer every step of the way so it's important that you stay organized and remain in contact with them.
Consistent communication is key and if any hurdles arise or you simply need guidance along the way, don't be shy about talking with your servicer. They are there to work with you throughout this process so your debt can be handled responsibly.
Be Mindful Of Tax Implications
When looking at options for paying off your parent’s reverse mortgage loan, it is important to consider tax implications as well as closing costs and fees associated with refinancing or taking out another type of loan.
In some cases, there may be capital gains taxes owed if you sell assets such as stocks and bonds in order to pay off your parent’s reverse mortgage debt; this should be discussed with an accountant before doing so. Additionally, some lenders may require that taxes be paid up front before they will approve refinancing or taking out another type of loan; this should also be discussed with an accountant prior to making any decisions about how best to pay off your parent’s reverse mortgage debt .
-----
Paying off your parents' reverse mortgage loan may seem like an overwhelming task but there are options available to help make it easier and more affordable that make this possible without having to go into too much debt or sell off assets unnecessarily.
The key is understanding all available options so that you can make an informed decision about which path makes sense for your family situation. Taking time to research each option carefully will help ensure that whichever method you choose will help ease some of the financial burden from both yourself and your parents as they move forward into retirement age together.
Our loan specialists at Simple Reverse Mortgage can help you and your aging parents to understand all the benefits and processes of acquiring a reverse mortgage, and help you every step of the way. Contact us for a no obligation Consultation.