Ask Phyllis: a blog series of frequently asked real estate questions.
Reverse Mortgage Confusion
I enjoyed reading your column and have learned a lot about reverse mortgages. I have moved in with my parents, who are in their late eighties. My father has been the one who handled all the bills and budgeting. Lately, I have noticed that he has been very frugal with money, which is not like him. He finally admitted that he got a reverse mortgage two years ago and can’t tap any more equity out of the home. They have lived in their home for forty years, and I just assumed their mortgage was paid off. He thinks he should sell it and move to a condominium in a more affordable county like Ventura. I know he gets a pension and social security. But apparently, he doesn’t get any income from the reverse mortgage. This doesn’t make sense, as I thought the purpose of it was to pay the borrower. I feel like I am missing part of the puzzle. Do you have any thoughts?
There is a lot of confusion over reverse mortgages. Perhaps your father chose to obtain a reverse mortgage to pay off his existing loan. From your scenario, this appears to be the case. Although he doesn’t have a mortgage payment, he is still responsible for property taxes, maintenance, and homeowners’ insurance. And, of course, daily living expenses.
As your parents are in their late 80’s, their next move may likely be to assisted living. It seems that they are really in a pickle. Perhaps you can sit down with your father and go over their monthly expenditures and learn if they can make any reduction in their expenses. There are other options, but they have drawbacks:
He likely has a lower interest rate because he obtained the loan a few years ago. So, it doesn’t make a lot of sense to refinance and get another reverse mortgage (assuming they have the equity) with either a lump sum or monthly payments.
I don’t know if selling is the best option for them either. Having purchased the home more than forty years ago, your parents will have considerable taxes due to capital gains. Both Federal and State. Selling their home and buying another will have costs on each side of the transaction. They really should discuss the tax ramifications with their CPA.
I don’t know if I really offered you any viable help, and I am sorry for that. I wish you and your parents the best.