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Reverse mortgage for Mom?

By Terry Savage on July 01, 2016 | Housing / Real Estate

My mom is 76, and she is running out of money.
She feels like she needs to sell her house.
The house is completely paid for, but, there are home owner fees and of course taxes. Would it be wise for her to do a reverse mortgage, or should she sell the house?
Just a note, she doesn’t want to sell the house if she can help it.
Thank you,

Terry Says:  OK, there are a couple of things to think about before you take this step — and it looks like you’re going to be the one to help her through this thought process.  I want to say right up front that I do “believe” in RMs — in the right circumstances.  My father has had one for years – -and he’s 95 and still living in his condo, thanks to his wife and the long term care insurance policy I purchased for him years ago!  So his RM has worked out very well.  (In fact, the RM lender sends someone out every once in a while to make sure he’s still living there!)

So, step one is to look at your mother’s finances.  Even if she gets a RM and has Social Security, will she manage to keep the house in good condition and pay the property taxes and homeowner’s insurance?  Do you imagine that she could still  live there for at least another 8 years?  If you can answer YES to both of those questions, then it might pay to get a reverse mortgage.  If you are hesitant, maybe this is the time to move to a seniors residence — while she is young enough to make new friends and enjoy a new life.  Those are the issues you both must face.

To figure out the financial side,  you’ll need an estimate of how much money she could get monthly — and that is based on her age, the value of the home, its location, and the current level of interest rates.  Go to www.ReverseMortgage.org and use the calculator there to figure out what she could get monthly.  Remember, the lender doesn’t loan out ALL the value, but keeps some in reserve to cover situation’s like my father living far longer than the actuaries predict.

There are fees and costs upfront and ongoing with a RM.  That’s why it’s important to believe that she could live there for another decade or so.  Those additional fees and monthly interest costs come out of the equity in the home.  She can never owe more than the home is worth, and never be forced out.  But once she leaves for any reason, the loan must be repaid or the lender takes the home and sells it,  keeping what they are owed.  That means it is likely that little or no value will be left for heirs.

Independent counseling is required before any RM is created.  Learn more at the website linked above to learn all about reverse mortgages.



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