Bren, reverse mortgages have nothing to do with this issue and should not be conflated.
Let’s look at how reverse mortgages work. When a senior citizen needs more money for medical bills, caregivers, prescriptions, and expenses, or simply wants more money for travel or fun, they can take out a reverse mortgage.
Instead of building equity by making mortgage payments, seniors can use their existing home equity to make their mortgage payments and provide themselves with extra income. For senior homeowners living on social security alone, or an equally small pension, a reverse mortgage can double their monthly income.
A reverse mortgage from the government allows seniors to stay in their homes until they die or move into a care facility. Even when seniors exceed their equity, or the total value of their home, they can still stay in their homes and collect extra income.
If your heirs want to keep your home after you die, they will have to repay either the full loan balance or 95 percent of the home’s appraised value – whichever is less. Unfortunately, many heirs don’t have that kind of credit, or they are financially overextended.
Insurance companies and financial institutions got in the reverse mortgage business and their behaviour was so bad, reverse mortgages got a bad name. Instead of a straight reverse mortgage offered by the government, these companies sold annuities, and if a senior lived too long and their payments went negative, seniors were evicted.
Heirs are another reason reverse mortgages got a bad name. Planning on an inheritance when their parents died, grown children bought homes and cars and took trips they could not afford on their own. Only when their parents died, did these grown children discover their parents had taken out reverse mortgages on their homes, and there was very little, if any equity left. When these grown children discover this, they “claim” the government cheated their parents, or cheated them out of their inheritance.
In Mrs. Tyler’s case, taking her home away, deprived her of the financial benefits a reverse mortgage would have provided her, if she needed or wanted one. In fact, a reverse mortgage might have enabled her to pay her taxes.
