Should You Tell Family or Heirs About Your Decision to Get a Reverse Mortgage?
The only people you NEED to tell about your decision to get a reverse mortgage are those who are living in your home with you.
However, there are many benefits to sharing your decision with other family members — especially potential heirs.
Here are 5 reasons why you might want to talk to your loved ones about getting a reverse mortgage:
1. Alleviate Any Guilt You Might Be Feeling
Some reverse mortgage borrowers are nervous to tell heirs about the loan and they sometimes feel guilty for potentially reducing whatever home equity they could otherwise pass on as an inheritance.
However, you may be surprised to learn that research indicates that heirs not only do not care about receiving an inheritance, but they are also ready and willing to sacrifice their own finances to care for aging parents. A study from the pollingcompany.com found that 75 percent of adults with living parents were willing to sacrifice their own finances to help their parents.
And, research from HSBC found that Americans lean more toward spending all their money, with 23% saying they are inclined to do this, and only 9% believing it is better to save as much as possible to pass on to their heirs. The remaining 68% say that they would like to spend some and hopefully pass on some too – which is indeed possible with a reverse mortgage.
By discussing your decision with potential heirs, you can learn about their concerns and you will likely find out that your heirs support your decision and want you to be as financially comfortable as possible in retirement.
2. No Misinformation About Heirs’ Obligations
A reverse mortgage allows homeowners who are 62 or older to borrow their home equity. The loan accrues interest and is paid back when the borrower dies or moves out of the home. This means that the borrower’s heirs will probably inherit less.
They still inherit the home, but must repay the reverse mortgage – usually by selling the property.
However, there is a lot of misinformation and misunderstandings about heirs obligations. Many reverse mortgage borrowers and their heirs think that the house is completely lost or that it is going to be a burden to have to repay the loan.
However, heirs have options:
Keep Home: If the heirs wish to keep the home, they can pay off the reverse mortgage loan with their own money.
Sell Home: More commonly, heirs opt to sell the home to pay off the loan.
- Sometimes after the sale, there is money left over for the heirs to get an inheritance.
- Other times, what is owed on the loan is actually more than the value of the home. However, since reverse mortgages are “non-recourse” loans, heirs will never be required to pay more than 95% of the home’s appraised value—even if the loan balance grows to exceed the value of the home.
3. Opportunity to Communicate What is Important to You
If you need or want money from a reverse mortgage now, but are concerned about taking away an inheritance, talk to your children about the pros and cons of the loan in light of your personal priorities.
You can communicate what is important to you and why you want the money now. You can also express your concerns. If you have at least a fairly good relationship with your heirs, then it is likely to be a positive and supportive conversation.
4. Heirs Can Better Plan their Own Financial Future
By talking with your heirs about your decision to get a reverse mortgage, you give them the chance to better plan their own financial futures.
5. Insures a Smoother Estate Process
You can help your heirs by educating them about what happens to the reverse mortgage loan after your death.
It is important that they know that they must notify the servicer (lender) within 30 days of the homeowner’s death of their intentions — what they plan to do with the home.
This early notification preserves the heir’s options and gives them up to 12 months to settle. If they don’t notify the servicer, then the lender can act on their own.
Is a Reverse Mortgage Right for You?
Studies indicate that more than 90 percent of all households who have secured a Reverse Mortgage are extremely happy that they got the loan. People say that they have less stress and feel freer to live the life they want.
Instantly estimate your Reverse Mortgage loan amount with the Reverse Mortgage Calculator. Or, assess your suitability for these loans with the Reverse Mortgage Suitability Quiz. This quick test gives you an overall grade about whether or not a reverse mortgage is something you should consider. You also get personalized commentary on various aspects of the loan and how they will impact your retirement.