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Reverse Mortgages Disinherit Your Children

Written by Gary North on June 28, 2012

A reverse mortgage is a loan against equity in your home. You borrow against this equity.

You must continue to pay property taxes and fire insurance, but you live rent-free in your home. The amount of the loan is determined by your life expectancy.

The lender gets your home at the death of the surviving spouse.

Not many Americans who own their homes have taken out a reverse mortgage: under 3%.

The advantage of a reverse mortgage is obvious: you get money for living expenses. The disadvantage is that you leave nothing to your heirs. For most Americans at the time of death, their main asset is the equity in their homes.

The plight of retirees is this: the equity in their homes has shrunk by a third or more since 2007. At the same time, they are living longer. They have not saved. Their monthly expenses are rising. They have no pension. They live on Social Security.

None of this is new. Parents have become dependent on their children from the beginning of humanity. Pensions are new. Government medical insurance is new.

The problem is this: tens of millions of retirees did not plan to move in with their children in old age. They want their independence. But they run out of money. Then they are tempted to take out a reverse mortgage.

Before doing this, a parent should discuss this with the heirs. Who is willing to chip in today in order to inherit the parents’ home? If no one chimes in, then it is time to consider taking out a reverse mortgage.

Be sure you have a written budget before you do this. People who have no budget will be tempted to burn through the money fast. Then what? No money, no equity, and disinherited children.

Children who expect to inherit a house had better initiate a discussion of all this soon. Parents may take out a reverse mortgage without telling the children.

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12 thoughts on “Reverse Mortgages Disinherit Your Children

  1. Good practical points, Gary, but you failed to mention the bigger issue which is the wicked breakdown of the family and familial relations that has brought people to this. Children are to care for their parents in their old age &/or infirmity. Not doing so was a sin so wicked Christ mentioned it explicitly in his rebuke of the Jewish leadership. My parents are old and infirm, but not Christian. I have asked them repeatedly to move in with us but they "want their independence" and "don't want to be a burden". A lost opportunity for us to show both our love and the love of Christ to them, and for me to repay the years of care they spent raising me. My sons are following the Lord and although still teenagers have said they want my wife and I to live with them if/when we are unable to care for ourselves. If all Christians lived this way, what a 'light on a hill' we'd be to the lost and lonely of the world.

  2. I a relieved this article took at turn to sanity. Yes if the kids want the house they better help keep it. In this day and age it is no longer about proper planning, cost of EVERYTHING are up! I saved, yet will have to borrow against my house to have any sort of lifestyle where i do not worry about every purchase. IT WILL STILL BE HARD!
    Also with the 50% death tax on the horizon may as well use the money now. I bought my house, the kids can buy their own. I paid for education, they are successful, why should elders pinch pennies when we have money in our home.

  3. Bill in NC says:

    The fees with reverse mortgages are so high seniors come out better selling their home to their kids for a lump sum or stream of payments.

    Even after paying an attorney to structure the above.

  4. I had given brief thought to this idea but when I read the ramifications I quickly decided it wasn't a good idea. My children have their own homes but I wanted them to have the home they grew up in and the opportunity to dispose of it or keep it as a rental. As far as the death tax is concerned the government will get money one way or another. No one will leave this world without their family paying some tax on something. After all it is government's job now to collect tax from the day you are born until the day you die and if you leave one red cent then they will tax that after you die.

  5. The lender will end up owning the house, I understand. Is this not orchestrated by the government – in which case they
    will end up owning even more real estate than they already do in land and resources. In this part of the plan ? I just
    do not trust them at all.

  6. Sarah Turner says:

    You are most likely correct. I syppose they need all of this property to give to the illegals that they are pandering to, to incourage even more to sneak over the borders in order to take advantage of the freebees that our government takes from the citizens and give to the illegals.

  7. But they will have money to live on and if they don't use it all, then the children get the balance of the money, not the house.
    'And sometimes your children would want you to be independent rather than them take care of you. And why do the children have to inherit anything anyway. If they are doing okay themselves they don't need an inheritance. But a reverse mortgage mortgage is expensive and should be avoided if possible.

  8. If your kids have the cash…fine. They can be the lender. Very often that's not the case. And the costs are little more than a conventional mortgage, particularly for two years since HUD introduced the SAVER version.

  9. Mr. North, love your observations most days. But this is flat out wrong: "The lender gets your home at the death of the surviving spouse." That misconception has been repeatedly debunked for over a decade. The lender is never on the title to the house. You will the house to your heirs and live there for the rest of your life if you like. No payments for as long as you live there. You can also sell it at any time, pay off the balance and keep the proceeds. So you should correct that instead of foster misunderstanding of this valuable product for seniors. It has kept people out of nursing homes, it allows them to 'age in place' and scrape a little gold off the wall of the house while still living in it.

  10. I can see this being a good thing if you have no family. It's best to sit down with your children or close family and let them help you make the decision since they will be the ones that will lose the family home at your death.

  11. 1. Listen to TruNews with Rick Wiles.
    2. Listen to The PowerHour with Joyce Riley.
    3. Seek & get as close as possible to God, & obey what he's telling you to do.

  12. Kevin A says:

    The lender becomes the #1 creditor as a lein on the house. The lender gets paid upon the death of the contractee by sale of the asset or a cash settlement equal to the amount they have paid the annuitant.