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Dear Liz: My healthy and active 82-year-old mother is faced with having to sell her home this year because she’s running out of money. She has lived a very minimal lifestyle for many years as her savings dwindled, and her income is now basically Social Security. She owes $25,000 on a home worth more than $700,000 in a top school district. We don’t know if we are jumping the gun with this sale. I could move in with her and pay rent for a year or two, although that would mean a longer commute for me and would just put off the day she has to sell. There are things that must be done to the house for upkeep, and her being cash-poor puts her in a crunch. My brother will help pay for minor sprucing up depending on what the real estate agent says we need to do to make the house presentable, but if Mom remains in the home there are other things to be done. We are assuming that we should sell it and find an apartment for her to rent until she needs more assisted living at a later age. Are we right to take action now?

Answer: Your family needs to take action, but setting your mother up for not just one but possibly two future moves probably isn’t the best course. Moving is terribly disruptive, and AARP surveys show that the vast majority of older people prefer to “age in place” rather than leave their homes.

Investigate reverse mortgages as one option. With a reverse mortgage, your mom could pay off her small mortgage and tap the substantial equity in her home. She could get a lump sum, a stream of monthly checks or a line of credit that could allow her to fix her home and live more comfortably. She wouldn’t have to make payments or pay income taxes on this loan, and it wouldn’t have to be paid off until she dies or moves out.

Reverse mortgages can be expensive because of the fees involved, although a new version of the federal Home Equity Conversion Mortgage offers lower upfront fees, and some lenders will waive or reduce their fees. You’ll want to do plenty of research, and shop around to make sure you get the best deal. The AARP and U.S. Housing and Urban Development websites have a lot of information about reverse mortgages.

If your mom decides she’d rather sell, she should consider a move directly to a senior community that offers assisted living as an option. She will have the most choices if she’s healthy when she moves in. Although she may never need the assisted living option, many people start to need some kind of help with daily activities by the time they reach their mid-80s.

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Categories : Elder Care, Q&A, Real Estate

2 Comments

1

My wife and I are close to closing our reverse mortgage loan and there is one part of the process I am in complete disagreement with. At closing we have to come up with around $5,000 for PMI and continue to pay annually a smaller amount. I can’t understand the logic of this “rule”. After closing the loan and coming up with $60,000 to pay down our existing mortgage, we will have more than 35% equity in our home – even at the low market price – and a PMI is normally required if you have less than 20% equity in your home. Why are these companies allowed to require a PMI in this instance. I was always told the PMI was to cover the unpaid balance of a mortgage if someone were to walk away from the home. In a reverse mortgage there would be no reason to walk away and when you must leave your home it becomes an asset for the mortgage company. Please help myself and others understand this “rule”.

2

Your reverse mortgage balance will grow over time, and one function of the mortgage insurance is to protect the FHA is your balance grows to be more than the value of your house. The insurance also protects you if the lender goes bankrupt; you’ll still have access to the proceeds of your loan.