July 04, 2007 I am rerunning this article due to a similar question from D.N., Allenton
My mother is 76, her health is failing, and her medical bills are mounting. I am struggling to help her out financially. She still owes about $20,000 in mortgage on her house but it is worth about $250,000. With her lack of income her bank is unwilling to do a "cash out" refinance. I think she'll have to sell her home to pay her bills. Are there other options?
— C.V., Metamora
C.V, A reverse mortgage is the answer to her problems. Selling her home would cause more problems than it would solve. Where would she live after selling? Selling her home could also open that cash asset up to government seizure should she have to go on Medicare. By doing a reverse mortgage it protects that asset as well as gives her cash to pay her living expenses. It is called a reverse mortgage because the lender is paying her each month-the reverse of a normal mortgage. To qualify for a reverse mortgage the deed holder to the home has to be 62 years or older and have significant equity in their home. A reverse mortgage is a loan that allows older homeowners to convert that equity into cash. She keeps title on her home and can continue to live there, all while collecting cash payments generated by the loan secured with the home's equity. She can collect cash as she needs it with no payments being due to the bank until she sells it or upon her death. Either way, the balance due is paid from the proceeds of the sale. She could take a lump sum payment or monthly cash advances. Since it is a mortgage it is not considered taxable income and does not affect her Social Security or Medicare benefits. She would still be responsible to pay the taxes, insurance, etc. Not all lenders offer this type of financing but I am surprised that her bank did not mention this option to her. I would call around to find a loan officer who is familiar with this loan program. Make sure they explain everything about this loan to you and your mother so you both understand it fully.
Alex Lengemann is a licensed Real Estate Broker who operates RealtyVolution.com, a local real estate company. You can Ask Alex your real estate or mortgage questions by phone 810-664-1819 or by email Alex@RealtyVolution.com.