Is a Home Equity Conversion Mortgage right for my parents?
If your parents are age 62 or older and own their home, they can use a home equity conversion mortgage to access their home equity and get needed cash—with no monthly mortgage payments required. If they have an existing mortgage, the home equity conversion mortgage will first be used to pay that off. And without that monthly payment, they’ll have more cash each month to spend as they wish.
A home equity conversion mortgage can provide funds to help your parents live more comfortably
No monthly mortgage payments are required
Your parents—not the bank—own their home
They’ll have to pay property taxes, homeowners insurance, and home maintenance as always
The loan comes due when they no longer live in the home, for whatever reason
Often, the home is sold to repay the loan (you can never owe more than the home is worth)
Any leftover equity goes to the heirs
How much money can my parents get?
It varies, based on the age of the youngest borrower, current interest rates, how much home equity they have—and the home’s value, sale price, or the maximum lending limit, whichever is lowest.
Counseling is required to help protect them.
The federal government requires everyone considering a home equity conversion mortgage to have a counseling session with an approved Department of Housing and Urban Development (HUD) agency to ensure that they fully understand the terms of the loan, and that it’s a solution that meets their needs.
The HUD-approved counselor can explain how home equity conversion mortgages work, and review your parents’ options with them. It allows your parents to ask the counselor any questions about home equity conversion mortgages, so they can make an informed decision about whether it’s right for them.
How and when does the loan have to be repaid?
Home equity conversion mortgages come due when all the borrowers no longer live in the home—whether that means they moved, had to go into assisted living or a nursing home, or passed away. Most often, the home is sold and the proceeds are used to repay the lender. If there’s any money left over, it goes to the estate.
It’s important to remember that if one parent passes away or moves out, and the other is not on the home’s title, or doesn’t meet the age requirement (62 and older), the home equity conversion mortgage will not automatically transfer to them, and the loan will have to be repaid.
What about adult kids who live with their parents?
The situation described above also applies to other residents in the home—including adult children of the borrowers. If parents leave the home and the loan can’t be repaid through other fund sources, the home would have to be sold, and any adult children or other residents would have to find another place to live.
What about your inheritance?
Since your parents would be borrowing money against the value of the house, and accruing loan interest and mortgage insurance payments, the loan amount will increase over time.
That said, the home may appreciate in value—so it’s possible that there may be money left over from the sale of the house that would go you as the heir, once the loan is paid.
But it’s important to consider that while your parents having a home equity conversion mortgage could mean a reduced inheritance for you, it also can allow them to enjoy a more comfortable retirement that helps them stay in their home longer. That’s what makes it a helpful financial solution for many older adults.