Parents taking a reverse mortgage

[Carnivores]

Me F(37) and am an only child, and my parents 70 & 73 have never made the best financial decisions, and have invested their time and money into their home over the last 30 years, worth around $600k now. They’re both retired, no pension or 401k, living off of SS. House only has about $52k left, but they’re saying they can’t afford the payments now because they’ve acquired about $40k in CC debt. They’ve been talked into taking out a partial reverse mortgage ($150k) and plan on ‘living’ off of that until they can’t anymore. My dad’s metal stays is not great, and I can see he will need long term care in the future. I am begging them to sell the house, down size and pay cash, pay down their debts and live happily on the remaining equity and SS. They’ve been convinced this reverse mortgage is going to solve all their problems, but I’m worried it’s only going to land on me once they pass or need long term facility care. What can I do to help??

 

[J Grant]

The reverse mortgage won';t "land on you" after they die. Once both spouses are gone, the reverse mortgage gets paid off, and the heirs get the house free and clear ( to sell if they wish). Normally, when a bank extends a reverse mortgage, they require the borrowers to pay off outstanding debts, but that won't stop your parents from more CC borrowing in the future. Nothing can prevent that-

Parents can receive monthly payments from the RM, so that they can correct it and help them survive. It will eat up equity in the house, though. With interest charges, the 160k RM they take out when they pass might have grown to 200k. By the time they pass away (for example ),

I am of course not an expert in RM- just sharing what I know... or perhaps sit down with a financial advisor about it.

It is their decision to make. It's not a terrible decision and saves them the stress and cost of moving and lets them stay in their home.

 

[Terrel L. Shields]

They’re both retired, no pension or 401k, living off of SS.

Lots of people would be away better off having saved the minimum allowed under an IRA but the above is pretty typical.

I am begging them to sell the house, down size and pay cash, pay down their debts and live happily on the remaining equity and SS.

I agree with you. But in the end, it will be their choice.

 

[glenn walker]

Since your not paying there bills the best thing they can do is reverse mortgage it. You don't need an inheritance and they don't want to live with others. When they die you can sell it if there's any equity.

 

[Surf Cat]

Wow....third reverse mortgage thread in the last couple of weeks.

I am begging them to sell the house, down size and pay cash, pay down their debts and live happily on the remaining equity and SS.

All you can do is present them with the pros and cons of each scenario of what would transpire financially if they do as you suggest or do the RM.

All I know based on personal experience is that it's going to be hard to get them out of their home that they've lived in for a good portion of their lives to sell, then downsize.

 

[Hondo]

My dad’s metal stays is not great, and I can see he will need long term care in the future. I am begging them to sell the house, down size and pay cash, pay down their debts and live happily on the remaining equity and SS. They’ve been convinced this reverse mortgage is going to solve all their problems

IMO, this is the best plan. If they buy an inexpensive house and pay cash for it, they can likely live comfortably on their Social Security payments and invest the proceeds from the sale of their current home, leaving those funds untouched until they’re truly needed.

The big unknown, of course, is the possibility of long‑term care, which can be extremely expensive—especially memory care. I’m paying a small fortune for memory care for my wife, and even though I’m still living in our mortgage‑free home, my Social Security covers my own monthly living expenses.

 

[J Grant]

Word - irresponsible people financially (I fit that profile for a while) -irresponsible or self-sabotaging people will act out regardless. The parents' 40k credit card debt is the problem, not their plan to take out a reverse mortgage ( to qualify, they might have to pay off the CC debt )

If the parents do what the OP suggests, downsize and pay all cash, the next day, they can take out an equity line or mortgage and run up credit card bills again. Plus, it sounds like they do not want to do it, so there's that. And investments can be risky as well esp for any decent % return.

Long-term care - perhaps consult a social worker who specializes in the health industry or is affiliated with a hospital. They can have more information about it than many accountants.

If your parents ever are amenable to moving down the road and your father's health indicates he might need LTC, there are assisted living communities that offer an entry fee, offering different kinds of apartments or villas, and that offer different step levels of care -that might be an option later if needed.

 

[ucbruis]

A reverse mortgage isn’t free money - it’s still a loan, and the balance keeps growing over time. They also still have to pay taxes, insurance, and maintain the home, or it can even go into default

more info reverse.mortgage/foreclosure

In your case, using $150k to cover debt + living costs sounds more like a temporary fix. If your dad needs long-term care or they move out, the loan can become due and the house may need to be sold anyway.

Your downsizing idea honestly sounds a lot more stable long-term.

 

[Zoe]

Some people quit claim their house to a child or children like you when they get real elderly. They stay in the house and rent from the children and children in your case would absorb the debt on the house and credit cards.

IRS rules apply so that a nursing home can't touch the house if they are forced to go in nursing home. They have to do the transfer of the home a certain amount of time before they die so that the nursing home can't put a lien on the house. I am assuming you think they may have to go in nursing home.

I don't know your financial capabilities or if you have brothers or sisters.

But some people do that to avoid the nursing home getting their parents house. It don't take long for a nursing home to get all the equity in the home. Nursing homes are very expensive and they will go after any asset your parents have to collect it.

IRS is one that controls those rules so you can google the rules or talk to an accountant.

 

[Zoe]

Some people even sell the home and take the cash and split it with their heirs. It has to be done a certain amount of time before they die. Then they go back to the children if they need more money.

This is your money. Will you help me if I need it to pay for something? Nursing home can't get it if you have got it a certain amount of time before they die.

Accountants like a CPA can help you on that. They know how to do trusts and all kinds of things with your parents assets where they can't be touched except whom they choose.