If an elderly parent needs a loan from a child in order to pay things such as property taxes, will the child be repaid if the parent enters a nursing home and the parent’s house is eventually sold via Medicare Recovery Act?
Assume that the parent signs a note stating the terms of the loan. Assume the parent is hardly able to make regular payments and the family does not want to use a reverse mortgage, etc. (The loan will sort of a “balloon” that is due to be repaid all at once.)
They own a small farm with a modest home and a barn but it is in an area where many fancy housing additions are going up. Their Social Security checks are very small and they have no other monthly income or savings accounts. Both are in their late 70′s and they need more income. Would a reverse mortgage be a good idea for them?
They have adult children who would like to buy the farm if the parents will hold the mortgage. I have doubts that they could/would keep up payments to their parents.
The amount of the loan is $200,000.00. The house was valued at $490,000.00.
Hordes of elderly homeowners are seeking ways to put money back in their pockets during their “Golden Years.” Retirement funds and Social Security have not provided sufficient means for some elderly homeowners and they are now looking for other ways to supplement their income. One way that is steadily on the rise in popularity among the elderly is the reverse mortgage. Avoiding foreclosure and other financial hang-ups are just a few of the reasons reverse mortgages appeal to the elderly. Below we will answer a few of questions about reverse mortgage.
What is a reverse mortgage?
According to reversemortgage.org, “A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment.” With a reverse mortgage, the homeowner receives payments from the lender instead of making payments to the lender like in a regular mortgage. Whenever the home is sold, the lender recovers the principle plus interest. According to hud.gov, “the size of reverse mortgage loans is determined by the borrower’s age, the interest rate, and the home’s value.”
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Reverse mortgage seems an easy out, but does it cost too much in the way of fees and is the variable interest a good risk in this economy? Is there a better solution I am not considering?
