How to Discuss a Reverse Mortgage with Your Parents

How to Discuss a Reverse Mortgage with Your Parents

If you are like most urban housewives, you are not only balancing bringing up your kids as well as running your home, but you are also worried about your parents – especially how well have they planned for their retirement. This is because most of us, including our parents, are living longer. As such, they may well outlive the money they have set aside for their golden years, and this could create some issues.

It doesn’t need to be this way as your parents are probably sitting on a tremendous source of capital to help pay for their retirement – their home. But the problem for most urban housewives is how to approach this discussion as most parents don’t like to discuss money issues with their children.

With that in mind, here are some pointers on how to discuss a reverse mortgage with your parents. Keep in mind this not an endorsement of a reverse mortgage as every situation is different, and this type of financial product might not be for everyone. But you can use these tips to deeply personal conversation with your parents about how they will have enough money for retirement.

Tip 1: Focus on Home Equity

In many cases, a discussion about a parent’s home mortgage is a deeply personal but talking about the equity they have built up in their home will be a matter of pride. As such, it might be easier to have a conversation with your parents about this point.

From there, you can ask them questions, such as what their home worth and how much equity they have built up over time. This will help to kick-start the conversation and then you might even be able to say to your parents that “it might be a good idea to check if you are eligible.”

Doing so, would put your parents at ease and feeling like they are in control of the conversation. This is an important point as you don’t want your parents to feel as if you are making financial decisions for them – even if you are.

Tip 2: Talk About the Benefits

One of the biggest benefits of a reverse mortgage is that your parents won’t need to continue their monthly mortgage payments. For those living on a fixed income, this can be a big plus as it would free up hundreds, if not thousands, of dollars every month – just imagine what they could do with this money.

Beyond this, a reverse mortgage will allow your parents to tap into the equity they have in their home without needing to sell it (i.e. no need to move) and without needing to pay taxes on the money (i.e. no capital gains).

However, you also want to be prepared to counter any concerns about what would happen to the home if it is passed down through their estate. Fortunately, reverse mortgages are what is know as “non-recourse” mortgages – this means that your parents or their estate won’t owe more than the home is worth.

In addition, your parents can always take out a life insurance policy for the value of the loan and the name you and your siblings as the beneficiaries. In this way, your parents will be leaving you with the money needed to pay off the loan when they are gone; thus, keeping the home in the family.

Tip 3: Focus on the Options

Getting a reverse mortgage doesn’t mean that your parents will receive a lump sum payment – they can if they want – but they can also opt to receive payments on a monthly or term basis.

This is helpful, as every situation is different and it will allow your parents to choose the best option for what they are trying to do. If anything, tapping into their equity now will ensure your parents have peace of mind going forward.

Tip 4: Talk to Your Parents About Their Fears

As mentioned all of us are living longer and this means that we need to have a financial plan to live into our 80’s or 90’s. Stop for a moment and think about this, your parents might be newly retired or maybe they have been retired for a decade or more. Either way, they probably are worried about having enough money and this opens an opportunity to ask your parents what they are most worried about.

In this way, you can turn the conversation to one which is not you dictating what needs to be done but rather what your parents are concerned about if they have a plan to do anything about it.