Q: My mother, who just turned 77, lives on Social Security. Although she’s grateful for her checks, they’re just not enough to ease her financial worries. I am able to help her pay for some of her medications each month, but she still barely makes ends meet. She invested in an IRA while she was working, but this year she will draw the last of her money from that account. Is there a safe and smart way she could borrow money against her house, which is paid off? Would she have difficulty getting a loan because of her age?
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A: There’s at least one kind of loan where your mother’s age will actually help her get more money than she might otherwise: a reverse mortgage.
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Reverse mortgages allow older people to borrow against the equity in their homes and receive either a lump sum or a monthly check. The older you are, the larger the amount you can typically receive. If your mother’s home is worth $200,000, for example, she could boost her monthly income by $699 to $777 with a reverse mortgage. If she were 10 years younger, the amount she would get could be as low as $319 a month.
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These payments would continue until she dies, sells the home or permanently moves out, at which point the loan must be repaid. Typically, the repayment comes from the proceeds of selling the house; any remaining equity in the home would go to her heirs.
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AARP has a free booklet about reverse mortgages called “Home Made Money” that you can download from its Web site (www.aarp.org) or order by calling (800) 209-8085. You might also check out Tom Kelly’s book, “The New Reverse Mortgage Formula” (2005, Wiley Publishing) for help in evaluating the various reverse mortgage products.