Myth or Fact – Will I Have Anything to Leave my Children?

Reverse Mortgage Myth: Nothing will be left for children

Reverse Mortgage Fact: Reverse Mortgage will impact how much is left for children, but children have the option to payoff the loan with funds, refinance into forward mortgage, and home appreciation may increase more than loan balance leaving a surplus. 

A reverse mortgage lets you borrow against your home’s equity, and that loan balance — principal plus interest and fees — grows over time since you’re not making payments. When you move out or pass away, the loan’s due. Your children (or estate) can pay it off and keep the house, or sell it, with the lender taking what’s owed and any leftover equity going to them. 

Quick Example:

• • Say your house is worth $300,000 today, and you pull out $100,000 through a reverse mortgage. At 5% interest, after 15 years, that could balloon to about $208,000. However the house value has increased to $400,000, selling it would leave $192,000 for your heroes after the lender’s paid.
    • Home values often rise. If that $300,000 house grows to $450,000 in 15 years (about 2.8% annual growth), your kids could still inherit $242,000 after the $208,000 payoff. And they’ve got options—they could refinance or use other funds to keep the house if it’s sentimental. HUD says heirs keep equity in about 60-70% of HECM cases, depending on market trends and loan terms.

How Reverse Mortgages Impact Inheritance:

• • Reduced Equity: A reverse mortgage essentially allows you to borrow against the equity you’ve built in your home. As you receive funds from the reverse mortgage, whether as a lump sum, monthly payments, or a line of credit, the loan balance increases over time.
  • Loan Balance Grows: As mentioned, the loan balance grows over time. This means that the amount your heirs will owe when the loan becomes due (typically after you pass away or sell the home) will be larger than the initial amount you borrowed.

What You Can Do:

• • Discuss with Your Children: Have open and honest conversations with your children about your financial situation and your plans regarding a reverse mortgage. This will help them understand the potential impact on their inheritance.
  • Get a loan proposal: This will spell out the terms of the loan and provide an amortization schedule that will detail out the amount left for heirs. 

A reverse mortgage will likely reduce the amount you’re able to leave your children.  It’s important to have realistic expectations and to discuss the implications with your family. 

Reverse mortgages can be a useful financial tool for eligible seniors looking to supplement income, pay for healthcare, or cover living expenses, but they also come with complexities that should be thoroughly understood before proceeding.

Learn more about eligibility requirements for a reverse mortgage, situations where a reverse mortgage is best used, and common myths around reverse mortgage that we debunk with facts