Reverse mortgage best for seniors without income
Q: My elderly parents, now in their 70s, are adamant about staying in their free-and-clear home. They refuse to move to an assisted-living center. But they are both becoming very forgetful. Just recently they had a small kitchen fire when mom forgot to turn off the stove. It's becoming obvious they need home health care. I've talked to them about a reverse mortgage to pay the cost. But their banker is pushing a home equity credit line instead because there are no up-front costs and he earns a sales fee. Which do you think is better?
A: If your elderly parents need additional income, how would they make the monthly payments on a home equity credit line? Although the interest rate will be a little lower than for a reverse mortgage, they would probably have to borrow more money each month to make the monthly payments. Eventually, they will use up their credit line.
With a senior-citizen reverse mortgage there are no monthly payments, nor can the homeowners outlive their equity. The accrued principal and interest come due when both your parents either move out of their home for longer than 12 months, sell, or they both die. Then the home is sold, the reverse mortgage is paid off, and the remaining equity goes to their heirs.
But the up-front reverse-mortgage fees can be substantial. For this reason, unless you expect at least one of your parents to live in the home at least five years, a reverse mortgage is usually not a good financial idea.
Source: Miami Herald
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