Reverse Mortgages: Are They The Right Financial Move For Your Elderly Parent?

Posted on: 30 October 2018

As parents grow older and enter the final decades of life, their adult children often assume some or all of the responsibilities for their care. In some cases, the assistance will be limited to assisting with physical needs, such as shopping or lawn care. In many cases, however, adult children who are assisting one or both elderly parents are also helping them with financial transactions, such as balancing the checkbook or even supplying funds to meet expenses that would otherwise be difficult or impossible for them to afford.

Elderly parents who have insufficient monthly income to cover their basic needs may have heard about and be interested in pursuing a reverse mortgage as a way to help make up the difference. If your elderly parents are considering a reverse mortgage, the following information can help them determine if it is a wise decision for their particular situation. 

Consider age 

Reverse mortgages are more beneficial to older applicants, than those who have just retired. Since the amount of the reverse mortgage is adjusted upwards as the applicant ages and life expectancy wanes, those who are well past their early retirement years are likely to see much more significant reverse mortgage payout amounts. 

Consider payout type

Another important consideration for elderly parents is the type of payout. Reverse mortgages typically offer lump sum or monthly payments, or both. If your elderly parents will need additional income each month to meet their expenses, opting for the monthly payment plan can be the better choice. However, if the money will be used to purchase a smaller home, pay for health care expenses or nursing home care, or cover another large expenditure, the lump sum option should be considered. 

Consider equity situation

A reverse mortgage is limited to homes on which there is no current mortgage or those which have significant equity. If your elderly parents are in a lesser equity position, the amount of money they might qualify for in a reverse mortgage may not be sufficient to meet the expenses they need to cover. 

Consider future plans

Since a reverse mortgage is due for repayment at the time when the homeowner moves from the home or passes away, it is important for elderly parents to consider their future plans when considering this type of financial option. Elderly parents who plan to leave their home to their children or grandchildren must understand that the reverse mortgage agreement will need to be satisfied by the beneficiary in order for them to keep the house as an inheritance. If they cannot pay off the reverse mortgage amount, the home will need to be sold. 

Financial decisions become more difficult at an advanced age, especially when income is lower than expected. Adult children who care for their elderly parents can help them to understand the reverse mortgage process more easily by taking them to meet with a reputable reverse mortgage specialist in their area who can provide the answers and guidance they need to make the best possible decision.