A recent study revealed that some who are retired are conflicted when deciding to leave an inheritance or keeping their current standard of living. Some of the things making life difficult for aging Americans are not enough savings; living longer than planned; medical costs; and a higher amount of the cost of living.
What is the correct thing to do? What are the options? Is an inheritance owed by retirees to their heirs? And then, what about the possibilities afforded by a reverse mortgage? What do the retirees think?
They are definitely investigating the viability of a reverse mortgage. Simply stated, a reverse mortgage lets homeowners who are at least age 62 to borrow against the equity in their home. The reverse mortgage loan gathers interest and must be paid back either when the homeowner dies or vacates the home. In this case, the likelihood of the borrower’s heirs having less of an inheritance is great. The home still becomes theirs, but they have to repay the reverse mortgage. This often happens by typically having so sold the residence.
During a few months’ time, more than 50,000 were surveyed regarding the question of what is more of a priority for you–to use your money now, or concentrate on leaving the most possible to your heirs?
Most, as might be expected, weren’t sure, with ⅔ of the people, not just seniors, finding it difficult. “Money Now”” was the response of 30 percent, with six percent saying they would “Leave for Heirs.” Of those expressing a viewpoint, those wanting “Money Now” outvoted the others by a five to one split.
In addition, an Ameriprise Study found that putting into their own retirement funding was important to the older, Baby Boomer Generation, so much so that 80 percent want a financially viable rest of their lives with only 30 percent caring if they leave an inheritance or not.
Independence is one key factor in the reverse mortgage scenario. This can mean the difference between needing and having to ask for help from heirs to ability to live independently.
A number of potential heirs do not care if they receive an inheritance but, beyond that, some indicate a willingness to give of their own monies to care for their parents should the need arise. A national online survey, taken by pollingcompany.com during June 11-13, 2013, asked 751 adults (aged 18 and above) with at least one living parent or guardian their inclination to give of their own monies to assist aging parents. The respondents answered to the tune of 75 percent that they would.
Reverse Mortgage Lenders are considered by some potential heirs to be difficult with whom to work. The complaints are mostly about paperwork and estate settlements.
While evidence shows that most heirs are ok with their parent(s) getting a reverse mortgage, it is wise to do the following:
Talk. Tell the heirs what YOU need. There is a reality afoot in many areas that downsizing and the retention of a Reverse Mortgage are critical. The Center for Retirement Research at Boston College has confirmed that many seniors face severe deficits in their retirement planning and it is critical that home equity is one of the few chances folks have to survive in a sustainable way.
If they are willing, you can then tell the heirs about the fine points of a Reverse Mortgage loan so everyone is as prepared as possible. Just like any other aspect of settling an estate, it is important to know the following, at least for an Executor, if not the entire group of heirs if possible.
There are options to weigh when the loan comes due. For example, the home can be kept if heirs can pay the loan with their own money.
Heirs have options for what to do with the home when the loan comes due. The loan can be paid with the money of the heirs. With a Home Equity Conversion Mortgage (HECM) insured by the Federal Housing Authority (FHA), they could pay 95% of the appraised value of the home. If desired, heirs can sell the home to pay off the loan amount, keeping any difference.
The interest accumulates on the loan. When you die, the loan amount may be even greater than the value of the home due to interest. However, your heirs will never have to pay more than the value of the home.
No matter what, the first thing to do is for the heirs to contact the Reverse Mortgage lender upon the death of the homeowner. It has to happen within 30 days of the homeowner’s death, thereby locking in options and giving them within 12 months to settle the loan. Otherwise, the lender can take its own action.