We frequently are approached by children of senior parents who want to know if a reverse mortgage is a good idea.

The first factor to be considered in making this determination is how long your parents plan to stay in their house.  Because a reverse mortgage comes with the usual fees associated with any mortgage, getting one for a period five years or less can be a poor financial decision. Remember, any money borrowed with a reverse mortgage must be paid back when your parents leave their home. If they plan on staying in their home for as long as possible, then this won’t be a consideration.

A second factor that should be weighed is the amount of equity they have in their house. The larger the equity, the larger the potential reverse mortgage income will be, which will then have a better chance of satisfying their financial needs.

A third factor in making this decision is whether or not your parents have other assets that can be converted to cash. If so, it may be preferable to sell a summer home or boat, or convert stocks to cash than getting a reverse mortgage.

However, if a reverse mortgage is the only way they have of obtaining cash to pay their expenses or to maintain their quality of life, then a reverse mortgage is not only a great idea, but a very logical one also.

Two last considerations: In helping your parents making this decision, you will need to have their best interest forefront in your mind. If you are more concerned about how a reverse mortgage may affect any inheritance you receive, then you need to look at this differently. In this case, you may look into life insurance policies which will pay you the value of the house upon your parent’s passing, or will allow you to pay the amount owed to the bank for the reverse mortgage.

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