Is a reverse mortgage the answer for elderly homeowners
Dear Attorney Tully: I am a widow and I see a lot of ads on TV
regarding reverse mortgagees. It sounds great, but I am not sure. I
would like to stay in my own home and am not interested in selling, but
my health is failing. I could use extra money to help with my health
care costs. What do you think?
ANSWER: With any financial and legal transaction you should take your time and consider the pros and cons. Do your homework and don’t let anyone put the hard sell on you. The reverse mortgage program is becoming more popular and accepted by seniors. In a nutshell, a reverse mortgage is a way to use the equity in your home and not have to make a monthly payment as long as you live in your home. Under our “system” of paying for a long term care, you may be able to qualify for Medicaid to pay for nursing home care, but in most states there’s little public assistance for home care. Most people want to stay home as long as possible, but few can afford the high cost of home care for very long. One solution is to tap into the equity built up in your home.
If you own a home and are least 62 years old, you may be able to quickly get money to pay for long term care (or anything else) by taking out a reverse mortgage.
Reverse mortgages, financial arrangements designed specifically for older homeowners, are a way of borrowing that transforms the equity in a home into liquid cash without having to either move or make regular loan payments. They permit house-rich but cash-poor elders to use their housing equity to, for example, pay for home care while they remain in the home or nursing home care if it becomes necessary. The loans do not have to be repaid until the last surviving borrower dies, sells the home or permanently moves out.
In a reverse mortgage, the homeowner receives a sum of money from
the lender, usually a bank, based largely on the value of the house, the
age of the borrower and current interest rates.
For most loans you need to qualify with your income and assets. This is not the case with reverse mortgages. Homeowners can get money in one of three ways (or in any combination of the three): in a lump sum, as a line of credit that can be drawn at the borrower’s option or in a series of regular payments, called a reverse annuity mortgage.
Although it is often assumed that seniors would want to use the funds from a reverse mortgage loan on health care, there are no restrictions — the funds can be used in any way. For instance, the loan could be used to pay back taxes, for house repairs or to retro-fit a home to make it handicapped accessible.
Borrowers who take a reverse mortgage still own their home. What is owed to the lender — and usually paid by the borrower’s estate — is the money ultimately received over the course of the loan, plus interest. In addition, the repayment amount cannot exceed the value of the borrower’s home at the time the loan is repaid. All borrowers must be at least 62 years of age to qualify for most reverse mortgages.
In addition, a reverse mortgage can be taken out if there is prior debt against the home. Either the old mortgage must be paid off before taking out a reverse mortgage or some of the proceeds from the reverse mortgage used to retire the old debt.
Attorney Daniel O. Tully is a partner in the law firm of Kilbourne & Tully, P.C., members of the National Academy of Elder Law Attorneys Inc., with offices at 120 Laurel St., Bristol, (860) 583-1341. If you have a questions for attorney Tully, send it to him at Kilbourne & Tully, P.C., 120 Laurel St., Bristol, CT 06010. He’ll filter through the questions and may use some as the basis for future columns.
ANSWER: With any financial and legal transaction you should take your time and consider the pros and cons. Do your homework and don’t let anyone put the hard sell on you. The reverse mortgage program is becoming more popular and accepted by seniors. In a nutshell, a reverse mortgage is a way to use the equity in your home and not have to make a monthly payment as long as you live in your home. Under our “system” of paying for a long term care, you may be able to qualify for Medicaid to pay for nursing home care, but in most states there’s little public assistance for home care. Most people want to stay home as long as possible, but few can afford the high cost of home care for very long. One solution is to tap into the equity built up in your home.
If you own a home and are least 62 years old, you may be able to quickly get money to pay for long term care (or anything else) by taking out a reverse mortgage.
Reverse mortgages, financial arrangements designed specifically for older homeowners, are a way of borrowing that transforms the equity in a home into liquid cash without having to either move or make regular loan payments. They permit house-rich but cash-poor elders to use their housing equity to, for example, pay for home care while they remain in the home or nursing home care if it becomes necessary. The loans do not have to be repaid until the last surviving borrower dies, sells the home or permanently moves out.
For most loans you need to qualify with your income and assets. This is not the case with reverse mortgages. Homeowners can get money in one of three ways (or in any combination of the three): in a lump sum, as a line of credit that can be drawn at the borrower’s option or in a series of regular payments, called a reverse annuity mortgage.
Although it is often assumed that seniors would want to use the funds from a reverse mortgage loan on health care, there are no restrictions — the funds can be used in any way. For instance, the loan could be used to pay back taxes, for house repairs or to retro-fit a home to make it handicapped accessible.
Borrowers who take a reverse mortgage still own their home. What is owed to the lender — and usually paid by the borrower’s estate — is the money ultimately received over the course of the loan, plus interest. In addition, the repayment amount cannot exceed the value of the borrower’s home at the time the loan is repaid. All borrowers must be at least 62 years of age to qualify for most reverse mortgages.
In addition, a reverse mortgage can be taken out if there is prior debt against the home. Either the old mortgage must be paid off before taking out a reverse mortgage or some of the proceeds from the reverse mortgage used to retire the old debt.
Attorney Daniel O. Tully is a partner in the law firm of Kilbourne & Tully, P.C., members of the National Academy of Elder Law Attorneys Inc., with offices at 120 Laurel St., Bristol, (860) 583-1341. If you have a questions for attorney Tully, send it to him at Kilbourne & Tully, P.C., 120 Laurel St., Bristol, CT 06010. He’ll filter through the questions and may use some as the basis for future columns.
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