It's a stomach-churning conversation: Your parents, the people who always seemed invincible, confess they're struggling to keep a roof over their heads. The house you grew up in might slip through their fingers, and now they’re considering a reverse mortgage to keep it – a financial move that sounds as risky as it does confusing.
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5 ways to boost your net worth now — easily up your money game without altering your day-to-day life
You’re their only child, and one day, that house will be yours. Should you bite the bullet and cover their mortgage payments?
With millions of Americans approaching retirement without enough money for it, this situation may sound familiar to many adult children. Sky-high housing costs and unexpected medical bills can turn the golden years into a financial minefield. Before you dive headfirst into a decision with long-term consequences, let's unpack what you're dealing with.
Reverse mortgages: Lifeline or trap?
Imagine this – your parents get to stay in their home, but instead of making monthly payments, they actually receive money. Sounds great, right?
That's the basic idea behind a reverse mortgage: Instead of a regular mortgage in which money is borrowed to buy a house and payments go to the lender until the house is paid off, a reverse mortgage involves a lender who pays you for equity in your property. The lender gets a stake in your home in exchange, and your parents get an advance on the equity. A reverse mortgage can provide a steady stream of income to supplement retirement funds and cover living expenses, giving your parents greater financial flexibility in their golden years. One of the biggest benefits is that it allows your parents to remain in the familiar comfort of their own home, maintaining their independence and avoiding the upheaval of relocation. And unlike a traditional mortgage, a reverse mortgage eliminates the burden of monthly payments, freeing up cash flow and reducing financial strain.
But there are plenty of drawbacks. The loan balance grows over time, accruing interest and steadily chipping away at your parents' home equity, potentially impacting their long-term financial security (not to mention your future inheritance).
Read more: 5 ways to boost your net worth now — easily up your money game without altering your day-to-day life