How a Reverse Mortgage Can Help Your Loved One

Our parents and older loved ones are living longer than they expected. Unfortunately, their savings may not last with them.

Today, about 45 million Americans are over age 65. That number is expected to more than double by 2060¹.

Better healthcare and an increased awareness on healthy lifestyle has allowed most of these Americans to live longer than ever before. The average U.S. life expectancy increased from 68 years in 1950 to 79 years in 2013¹.

While many older adults have more years to live, they don’t always have the savings to realize a high quality of life through retirement.

The Government Accountability Office found households with members age 65 to 74 have savings of about $148,000, which equates to between $310 and $649 per month². This isn’t much when you have to supplement modest social security payments and, if you’re lucky, a pension.

“Some people are already running out of money at that age,” says Monica Emmert, a reverse mortgage specialist with Finance of America Reverse, LLC. “They’re not predicting the future. They’re already there.”

If your loved one struggles to pay the bills, you can help them find a solution. Many older adults have been able to improve their financial lives with a reverse mortgage.

Why a reverse mortgage makes sense

A reverse mortgage gives adults age 62 and older access to funds that make a difference. By tapping into their greatest asset—home equity—qualified borrowers can eliminate mortgage payments. Free from that large monthly payment, your loved one can live more comfortably with less financial stress. Best of all, they get to stay in their home as long as loan obligations are met.  The borrower remains responsible for payment of taxes, insurance, and other property charges.

Here are a few benefits to a reverse mortgage:

• Older adults won’t pass on debt to their children. When older adults worry about outliving their savings, they also worry they’ll pass on debt to their children. A reverse mortgage can help eliminate this scenario.
• Use a reverse mortgage as a line of credit. With this option, your loved one can access funds only when he needs it. When your loved one has unexpected medical expenses, car repairs, or travel, she can use the line of credit, rather than her retirement savings, to pay for those expenses.
• Use it to improve quality of life. Rogers’s parents used reverse mortgage proceeds to cover the impromptu trips her mom liked to take. Retirees can use a reverse mortgage to pursue hobbies while their retirement nest egg continues to grow.
• No upfront fees or taxes. Borrowers can pay lender fees and closing costs using loan funds. For an older adult facing financial challenges, that means no out-of-pocket expenses.

Also, the IRS considers a reverse mortgage a loan advance, which means it does not tax proceeds. Consult your tax advisor. Loan proceeds usually don’t affect Medicare or Social Security benefits.

How you can help your parents

A reverse mortgage is complex. Caregivers can help their parents understand the loan terms by taking the following steps:

• Research lenders. Because fees can vary, children should research more than one lender to find the most favorable loan terms.
• Research the loan. Educate yourself on the pros and cons of a reverse mortgage before you talk to your parents. When caregivers fully understand how a reverse mortgage works, they can help their parents understand too.
• Talk to a counselor. To determine which type of reverse mortgage is right for your parents, speak with a state-licensed reverse mortgage loan originator in your area. A loan originator will explain terms and fees, help determine a proper loan amount, and walk you and your parents through the entire process, from application to closing.
• Attend counseling. Borrowers are required to meet with a Home Equity Conversion Mortgage (HECM) counselor. Your presence during counseling will help your loved one feel more at ease.

If your loved one owns his or her home and worries if they’ll outlive their retirement, a reverse mortgage may help them rest easier. By converting equity into tax-free funds*, your loved one can get out of debt, cover unexpected expenses, and enjoy a life with fewer financial worries and more freedom.

For more information on how a reverse mortgage can help your loved one, visit the Finance of America Reverse LLC caregiver resource page.

* Not tax advice. Consult a tax professional.

1. ¹Mark Mather, “Fact Sheet: Aging in the United States.” Population Reference Bureau, January 2016.
2. ²“Retirement Security: Most Households Approaching Retirement Have Low Saving.” United States Government Accountability Office, Report to the Ranking Member, Subcommittee on Primary Health and Retirement Security, Committee on Health Education, Labor, and Pensions, U.S. Senate. May 2015.

This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.