QUESTIONS TO PONDER
- Is there a concern from other siblings as to inheriting the home or the equity?
- Do I have the financial resources to help my parents with their medical and living expenses?
- What are my parents’ wishes as to staying home if medical care is needed for an extended time?
COMMON CONCERNS
Will Mom and Dad use up my inheritance? While tapping into their home's value, your parents’ home may appreciate in value, which could allow for some equity to be left at the end of the loan, but not always. It is possible for your parents to use up their home's remaining equity. Keep in mind that they could be able to live more comfortably without having to depend upon family members to support them.
Will the bank take their home? Your parents will continue to own and live in the home as long as they continue to meet the loan guidelines. However, they must keep their property taxes current, keep required homeowner’s insurance in force and the home in good repair. Failure to do these things could result in the loan being called due and payable. Just as a borrower with a traditional mortgage retains ownership, your parents will continue to own their home and retain title as long as they abide by the loan guidelines and requirements.
How much money will they owe when the loan has to be repaid? Your parents will owe the total amount borrowed (up to the value of the home), accrued mortgage insurance premiums, accumulated interest, servicing fees, and any other costs and fees financed through the loan amount.
How do I repay the loan? There are three viable options for your parents. They can sell their home to repay the lender and collect any leftover proceeds, choose to reimburse the lender directly from a personal account, or refinance the loan.
What happens to my mom and dad’s house if they move into a senior care facility? A HECM becomes due and payable when the last borrower moves out of his or her home permanently. For instance, moving into a senior care facility, selling the home, passing away or moving in with the children.
Are there restrictions on how my parents spend their money? Your parents can spend their money any way they choose. Borrowers have often used their HECM to pay off other debts, make home improvements, go on vacations, replace an aging vehicle, or eliminate an existing mortgage payment (the existing mortgage debt is refinanced into the HECM loan and your parents must continue paying their property taxes current, applicable HOA fees, and keep the home in good repair).
Is there any information that provides what all of the fees will be? The lender is required to provide your parents with the Total Annual Loan Cost, or “TALC” disclosure, which is required by the Federal Reserve Board. The TALC displays the total transaction costs over the projected life of the loan, which will allow your parents to see all costs related to the HECM.
