Leaving The Home Equity To Your Kids
A common concern for seniors considering a reverse mortgage is the ability to leave an inheritance for their children and heirs. As discussed in Myth #1, a reverse mortgage does not result in your loss of home ownership at any point as long as you keep it as your primary residence and follow the loan terms.
However, when the reverse mortgage is closed the property it is secured by a trust deed that is placed against the home, just as any other mortgage. As a result this loan needs to be paid off if the home is sold, or within 6 months of your passing. Your heirs receive a 6 month grace period to make arrangements to ensure they are able to take full advantage of the home you leave to them.
Your heirs will have the same rights with regard to the home as they would if you did not have a reverse mortgage. Some choose to keep the home while others want to sell it. The 6 month courtesy given them will allow sufficient time for them to refinance the home or sell it. If they want to keep the home the refinance will need to pay off the reverse mortgage balance on the home, leaving them the remaining equity in the home. If they sell it they will receive the proceeds from the sale after the reverse mortgage balance has been paid off.
In short you are able to pass the property and its equity on to your heirs; however the equity in the home will be reduced as a result of the reverse mortgage against the home. In most cases there is still a good amount of equity left for your heirs. In fact, the amount of equity in the home usually increases with time despite the reverse mortgage interest that accrues against the home. Average home values typically increase faster than the current interest charges do. Market conditions vary of course, but the 70 year average median price of homes rises at 8% per year even after adjusting for the recent housing bubble based on figures from November 2010.
These historic trends on home values are used by FHA and mortgage lenders when determining the size of the loan you may be approved for. They want to insure that you don't ever owe more on the home than it’s worth even when all the interest accrued is added to the balance. This is why your age is used for the underwriting; enabling them to use average life expectancy along with housing market projections to make sure their risk is not too high. This same principle helps protect you and your heirs from not having equity in the home later on.
However, when the reverse mortgage is closed the property it is secured by a trust deed that is placed against the home, just as any other mortgage. As a result this loan needs to be paid off if the home is sold, or within 6 months of your passing. Your heirs receive a 6 month grace period to make arrangements to ensure they are able to take full advantage of the home you leave to them.
Your heirs will have the same rights with regard to the home as they would if you did not have a reverse mortgage. Some choose to keep the home while others want to sell it. The 6 month courtesy given them will allow sufficient time for them to refinance the home or sell it. If they want to keep the home the refinance will need to pay off the reverse mortgage balance on the home, leaving them the remaining equity in the home. If they sell it they will receive the proceeds from the sale after the reverse mortgage balance has been paid off.
In short you are able to pass the property and its equity on to your heirs; however the equity in the home will be reduced as a result of the reverse mortgage against the home. In most cases there is still a good amount of equity left for your heirs. In fact, the amount of equity in the home usually increases with time despite the reverse mortgage interest that accrues against the home. Average home values typically increase faster than the current interest charges do. Market conditions vary of course, but the 70 year average median price of homes rises at 8% per year even after adjusting for the recent housing bubble based on figures from November 2010.
These historic trends on home values are used by FHA and mortgage lenders when determining the size of the loan you may be approved for. They want to insure that you don't ever owe more on the home than it’s worth even when all the interest accrued is added to the balance. This is why your age is used for the underwriting; enabling them to use average life expectancy along with housing market projections to make sure their risk is not too high. This same principle helps protect you and your heirs from not having equity in the home later on.
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