Question: Is a reverse mortgage a good idea for my Mom?
Answer: A reverse mortgage is essentially a loan against your Mom’s home that she doesn’t have to pay back for as long as she lives in it. Thus, she can turn the value of her home into cash, giving her the ability to afford the remodeling she needs or maybe long-term care services that are not covered my Medicare. When she moves, sells the home or dies, the money is then paid back.
The loan can be paid to your mother in various ways: she could receive it as one lump sum, as a regular monthly cash advance like a paycheck, as a credit line that she draws against whenever she needs funds, or a combination of any of these methods. One word of caution: If she receives public benefits such as a SSI, make sure that her new income doesn’t throw her over the eligibility limits. Check with your local Area Agency on Aging to make sure she’ll still be eligible.
Reverse mortgages are available to people who are 62 years of age and older and own their own home. The major benefit with this type of loan is that your mother doesn’t have any monthly payments to make and she won’t need a certain income to qualify.
Here are some of the basics of reverse mortgages: There will be financing fees such as closing costs and the interest. Your Mom will remain the owner of her home; thus she’s responsible for the property taxes, repairs and insurance just as she always had been. When the loan is finished, your Mom of her heirs must pay back all of the cash advances plus interest. The lenders aren’t interested in owning and selling her home; they just want their money back.
One of the most important features of a reverse mortgage is the “non-recourse” limit. This means that the lender does not have any resource to secure payment for the loan from any other source – your mother’s heirs, assets or income. The only legal resource hey have is limited by the value of your Mom’s home. This is an important protection: your Mom will never owe more than what her home is currently worth when the load is to be repaid.
There are three major kinds of reverse mortgages. Some state and local governments offer single purpose loans, for example, to pay property taxes or to make home repairs, but there are usually income caps to qualify. Multipurpose loans can either be in the form of federally-insured Home Equity Conversion Mortgages (HECM) offered by banks and mortgages companies, or more expensive “proprietary” reverse mortgages, offered by private companies. These would enable your mother to use the money to, for example, both repair her home and receive a monthly income.
As with any decision of this magnitude, take the time to research all of your opinions. AARP has done an outstanding job of pulling the information together in a handbook, Home Made Money, and you can receive a free copy by calling 1-800-424-3410, or go to their website at www.aarp.org/revmort for the same information, along with a host of links.
The National Reverse Mortgage Lenders Association has set best-practice benchmarks for their members, and you can find out who has met these guidelines by either calling them at 1-866-264-4466 or visiting their website at www.reversemortgage.org. Not until you’ve done your research will you know whether or not it’s the right choice for your mother.
Information provided by Dr. Linda Rhodes, Finding Your Way, 250 Real Life Questions and Commonsense Answers http://lindarhodescaregiving.com/index.htm