We frequently have clients whose health is deteriorating and whose finances are becoming strained, but who have strong feelings regarding staying in their homes. Perhaps they do need round-the-clock nursing care brought into their home, or they may fear becoming isolated if they leave their neighborhoods, churches or friends to move into a facility.
Mike came to our office to find out more about a reverse mortgage and to confirm the information he received from the mortgage company. A widower at the age of 67, he had been diagnosed with Parkinson’s years before and he required an in-home caregiver. His cash had run low, but he had more than $200,000 in equity in his home. He decided that a line of credit (as opposed to a lump sum) of $100,000 would give him the flexibility to stay in his home for at least 1 year and would be worth the expenses. Mike was relieved to know that he was making a decision to protect what matters most to him – freedom to live in his own home.
If the client owns his or her home, a reverse mortgage might be the answer. Reverse mortgages are available to homeowners aged 62 years and older who have equity in their residences. The homeowners are not required to satisfy any income or credit requirements, however, they must be able to continue to pay the property taxes, insurance and other expenses of the property. They must also maintain the property in a condition that will not devalue the property.
The amount a homeowner can borrow will not be as high as the value of the property, but depends on the value of the home, the borrower’s age and the current interest rates. As a general rule, all other factors being equal, the older the borrower, the lower the rate and the larger the amount of money available to borrow. The payments may be made in several ways: lump sum, equal monthly payments, a line of credit available to the homeowner upon demand or a combination of a line of credit with monthly payments.
The loan is repaid upon the death of the borrower, the sale of the property or the borrower’s failure to reside in the property as his or her principal residence. The loan may also be required to be repaid for other violations of the mortgage agreement. The borrower should be aware that typical up-front costs of a reverse mortgage are higher than a conventional mortgage, and can vary greatly depending on the lender and rate.
Although payments received are considered loan advances and are not taxed as income to the borrower, the manner in which payments are received may affect means tested benefits such as SSI or Medicaid. We recommend that you consult with an elder law attorney prior to borrowing on reverse mortgage to determine the best type of mortgage for your situation.
The website for the U.S. Department of Housing and Urban Development has information on FHA’s reverse mortgage program:. http://hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm
You can receive additional free information about reverse mortgages in general by contacting the National Council on Aging at (800) 510-0301 or downloading their free booklet, “Use Your Home to Stay at Home,” a guide for older homeowners who need help now. It’s smart to know more about reverse mortgages, and decide if one is right for you!
Interested in finding out if a reverse mortgage is right for you? Please contact my office at 630-377-3241.
Linda M. Strohschein