Thinking About Reverse Mortgage

Individuals who live in their home, and have no or a very low mortgage balance, may find that a reverse mortgage will supplement income when needed.  While the borrower must be 62 years of age or older, caregivers who retain durable power of attorney can investigate this type of loan to help their loved ones.

The uses for the funds are up to the borrower.  Payments can be received lump sum or through a variety of other methods such as equal monthly payments; any extras can be retained in an interest bearing account.  Money market mutual funds, which are considered the “least volatile,” will allow checks to be written when necessary.   Taxes on the home can be pulled from this type of saving from a reverse mortgage.  Because it bears interest, there may even be a little left over to keep the account afloat for the following year, or for other expenses.

A financial advisor or a CPA should be consulted if the amount selected is in excess of what is immediately needed.  Consult with one before signing a reverse mortgage note, and know where the mortgage company will be sending the funds.  AARP cautions individuals who are approached by “lenders” who offer to “invest” their money.

Caregivers needing to make improvements on a loved one’s home for safety reasons can utilize the funds from a reverse mortgage to cover the bill.  The current appraised value of the home and any limits on lending for the geographic area determine the amount available for lending. 

There are costs involved with reverse mortgages, but you cannot owe more than your home’s value.  Going through a HUD approved counseling agency will help in finding if the costs and process will be a positive move.  They can be reached toll free at 1-800-569-4287. 

The common misconception is that a reverse mortgage will pay you money for your home and then “take it away” when the borrower dies.  Many folks worry that their home’s current value will be given to them, and when it appreciates, the lender will take that money, too.  This is not correct.

However, there are charges and interest involved with reverse mortgages, and they can consume the additional funds should the home be sold.  The area the home is in may undergo only a modest appreciation by the time it is sold, and simply meet the amount to be paid back.  So while you will not owe more than your home is worth, any loan requires interest to be paid.  AARP has a reverse mortgage education program and can be reached at 1-800-209-8085.

Evaluating your needs as well as your loved one’s is important when considering a reverse mortgage option.  Many caregivers must take time from work or alter their work availability to care for loved ones.  Rather than pull money from your own income, consider utilizing this alternative source of income.  If you have to make up the difference so that medications or other costs can be met, this will alleviate financial drainage.  It’s important to remember that should you stop covering for these expenses that you budget appropriately when you regain your income.

Upgrading the home is one way of “making” money with the reverse mortgage.  Changing floor schematics to allow for walkers or other ambulation products will help in the present and be a selling value for the future.  The safer the home is, the better the resale value.  Hurricane shutters will allow individuals to ride out storms in their homes, unless they are in a mandatory evacuation area.  The shutters will still protect the home whether it is inhabited or not, and can be used if extended visits are made to keep the home secure.

The family who cannot stretch their income to pay for home health aides may find that a monthly disbursement will cover these costs.  Again, speak to your tax advisor about how this affects your loved one’s taxes and if anything can be written off at tax time. 

The reverse mortgage must be paid back once the home is no longer the principal residence of one or more of the borrowers.  At the point where it is no longer the main residence, the loan may be paid back out of pocket, or from the proceeds of the home’s sale. Anything above the loan amount belongs to the homeowner or their heirs. 

That’s why discussing all aspects of the option with family and a financial representative is important.  If you are the primary caregiver and other family members are in conflict with this idea, remind them of the costs to take care of a loved one.  If you are bearing the major responsibility of caregiving and are the legal representative, you are the one in charge of making the decisions.  Reluctant family may be reassured by some instruction. Depending on the wishes of your loved one, the will can reflect the appropriate distribution of any finances left over from the reverse mortgage repayment.

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