Anecdotal evidence suggests that many adult children remain vehemently opposed to their parents obtaining reverse mortgages. Due to a combination of confusion over the structure of the reverse mortgages and concerns that the mortgages will eat into their future inheritances, it appears many adult children are opting to instead support their parents directly. But is this the right choice?

From the standpoint of protecting one’s inheritance, it probably is. Due to a combination of fees, insurance premiums, and interest, reverse mortgages gradually erode home equity, such that a borrower who obtains the maximum loan amount may be left with little or no equity in under 20 years. Unless the price of the home appreciates proportionally over this period, there is a real likelihood that the heirs will receive nothing from the sale of the home after the loan is repaid.

Where there is consensus that the home should be bequeathed upon one’s death (rather than mortgaged and ultimately sold), a reverse mortgage probably isn’t suitable. Instead, adult children should consi der their a few alternatives. Specifically, they can support their parents directly (by writing them a check every month, for example), purchase the house outright from them, or loan money to them using a structure similar to a reverse mortgage. In situations where adult children can afford any of these possibilities, the benefit is that no profits are extracted by a third party (lender). Another advantage is that the adult child can help his parent(s) manage their finances, by controlling the flow of cash to them.

In situations where this is either not practical, not affordable, or just plain not desirable, a reverse mortgage can serve the same purpose. The benefit is increased flexibility and freedom (from the borrowers’ standpoint). The reverse mortgage also serves as a de facto insurance policy against home price depreciation, since any losses from such will be born proximally by the lender, and ultimately by the FHA, through which most reverse mortgages are insured. The drawbacks – which at this point are probably already clear to you – are the high costs of the mortgage and lack of control over your parents’ finances. In addition, if they exhaust the proceeds from the reverse mortgage (to guard against this possibility, you could encourage them to select the monthly payment option), you would still be in the position of supporting them.