Not long ago, your mother or father was explaining (somewhat inarticulately) the birds and the bees to you. Now it’s your turn to relay some important facts of life. And conversations about reverse mortgages can be just as awkward.
According to a GAO analysis, 29% of households with members aged 55 or older have no defined benefit or other pension plan and inadequate retirement savings. Among 65 to 74-year-olds who have managed to save, the average nest egg totals just $148,000, which translates into roughly $649 per month. That’s not nearly enough to keep retirees afloat.
The upside? 59% of these families own a home. 35%, in fact, own a home with no debt. Monetizing a portion of home equity may be a good solution and a smart way to etablish financial security. And yet, many seniors have their doubts…
So this post outlines five common scenarios that will help shape your discussion about finances and reverse mortgages. See if you recognize any of these family dynamics, and learn how to help your parents make smart decisions.
- Your parents need to augment their retirement income, and they want your advice.
This is the best case scenario. It means both you and your parents recognize a gap in their monthly cash flow, and you’re all prepared to do something about it. Believe it or not, this puts you miles ahead of most families.
From here, you’ll want to explore all options. Remember: a reverse mortgage isn’t the only way to realign income and expenses. It might make sense to sell the home, downsize, or even rent. If you decide to explore a reverse mortgage as a potential solution, contact an experienced reverse mortgage professional, who will ensure you are fully informed. Your best choice would be a Certified Reverse Mortgage Professional (CRMP).
- Your parents could benefit from a reverse mortgage, but they have reservations.
In the wake of the Great Recession, retirees are more conservative than ever. Many worry about outliving their savings. Some resort to extreme measures—like keeping the thermostat on low in the winter, or rationing prescription pills that are supposed to be taken daily—to avoid taking on debt. It’s no wonder the idea of a reverse “mortgage” makes some seniors uneasy.
- Your parents are eager to pursue a reverse mortgage… too eager!
Remember Arthur “Fonzie” Fonzarelli from Happy Days? In the 70’s he was a fun character. Today he’s a home financing expert… Well, not really. Henry Winkler is one of several celebrities who promote reverse mortgage loans for the national lenders. Their commercials are positioned to air during seniors’ favorite shows. And because they’re such recognizable figures, many people do pick up the phone.
Our advice: caution your parents against responding to television ads.
Seniors who opt for big-box lenders soon discover how much these companies invest in marketing versus customer service. Objective consultation (not sales pitches) is essential in the reverse mortgage evaluation process—not just before the closing, but afterwards too, when your family needs help understanding or adjusting to the program responsibilites or the options available. (Did you know, for example, you can change withdrawal options as frequently as once a month?) Good luck reaching someone in a massive call center who will remember you or your situation.
- Your parents think they want reverse mortgage, but they aren’t actually good candidates.
If you’ve spent some time reviewing our site already, you know the basic reverse mortgage eligibility requirements: 62 or older, significant amount of home equity, etc. But there are other suitability factors to consider, including recently imposed financial assessment qualifiers added to the qualification process.
Are your parents independent enough to stay in their home for at least the next few years, if not longer? As they age, are they going to need more help running errands, keeping house, and maintaining their property? Are you, or others, prepared to support them in this way?
Often, reverse mortgage conversations lead to larger conversations about your parents’ long-term plans. It makes sense to anticipate how circumstances may change—with their physical health, cognitive abilities, or financial picture—and weigh the reverse mortgage option with those possibilities in mind. Not a comfortable conversation, but a necessary one for all concerned.
- Your parents are open, but your siblings or other relatives disagree.
Reverse mortgages have a bit of an unfair reputation—principally due to misconceptins and misunderstandings, and partially due to legitimate HECM program issues, many of which have been resolved in recent years by FHA program changes. For example, many people think their parents could get kicked out of the home if they live too long – not true. Or, that the bank takes the house – not true. Others worry that reverse mortgages are a scam – also not true, but nevertheless a common misconception among the uninformed. And, some adult children are simply opposed to the idea of having to pay off a loan balance (rather than inherit their parents’ house outright).
The truth is, reverse mortgages can provide much needed liquidity for seniors when they may need it, along with providing a measure of peace of mind knowing its there. Many financial advisors now endorse this option when it makes sense for their clients. If you’ve done your homework, consulted with a reputable professional, and your family still can’t agree, it may be time to seek professional assistance or mediation.