The process of obtaining a reverse mortgage is relatively straightforward from the borrower’s standpoint. The role of adult children, however, is slightly more complicated. If your parent(s) is contemplating a reverse mortgage, here are a few considerations:

The first step – and this applies even if your parent is not even considering a reverse mortgage – is to have a frank discussion with your parents concerning their finances. While this seems self-evident, research shows that the majority of adult children have either never had this conversation, or have undertaken the discussion in insufficient depth.  Before they begin the application process, then, sit down with your parents and try to understand their reasons for wanting to obtain the reverse mortgage and whether it will adequately address their financial concerns.

If it’s clear after this discussion that a reverse mortgage is the only real option that will satisfy your parents’ needs, you can suggest a handful of less expensive alternatives. For example, you (and/or your siblings) can extend a private reverse mortgage to your parents, thereby eliminating transaction costs and has the added benefit of keeping any interest that will be charged within the family. Their might also be tax benefits that inure to you as the lender. Of course, it’s important to notarize the loan and structure it in legal terms such that it cannot be challenged by other family members.  Another possibility is for you to purchase your parents home outright and simply allow them to continue living there. When your parents pass away, the home can be sold or kept, depending on your preference. Assuming you have the means, both of these alternatives will be more economical for your parents, and as an heir, potentially for you as well.

If neither of these possibilities is realistic and your parents are determined to obtain a reverse mortgage, the best thing you can do is to protect their interests. Actually, the first thing to do is to make sure your own interests are protected. Towards this end, you should urge your parents to obtain an insured reverse mortgage so that you (aka your parents’ estate) are not liable for any shortfall, in the event that the sale of the home is not enough to repay the balance due on the mortgage. Fortunately, the federally insured Home Equity Conversion Mortgage (HECM) is widely available, and a foregone conclusion for most borrowers.

If you are concerned that your parents might be taken advantage of, you can accompany them to sign the paperwork as well as to the counseling session(s). It might help your parents to have another set of ears, and you will be in a better position than the lender to provide unbiased advice in the decision-making process. Otherwise, encourage your parents to shop around, so that they get the best deal. For better or worse, the decision to obtain a reverse mortgage is theirs alone, and even if you disapprove, the best thing you can do once the decision has been made is to be supportive and help them through the process.

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