For many elderly homeowners their equity on homes is their most valuable asset — money in the bank — when money gets tight.


For others who are not making ends meet on limited income, equity may represent the difference between continued independence or relying on their children’s generosity.


For many elderly homeowners their equity on homes is their most valuable asset — money in the bank — when money gets tight.


For others who are not making ends meet on limited income, equity may represent the difference between continued independence or relying on their children’s generosity.

With a reverse mortgage, a person can turn the value of their home into cash without having to move or to repay the loan each month, according to AARP. A reverse mortgage is defined by AARP as, “a loan against your home that you do not have to pay back as long as you live there.”


A reverse mortgage becomes a lien on the home that accumulates interest. As long as the homeowner lives they may remain in the home without making payments. The homeowner does have the option of paying the mortgage off at any time. Upon the death of the homeowner, the lien must be satisfied.


Scott McNair, branch manager for Benchmark Mortgage, says he has trained more than 800 mortgage professionals in the past year on reverse mortgage.


“What brought this up is my wife’s grandmother had to sell her home about five years ago because she did not have enough income coming in to take care of her medical expenses and her bills,” McNair said. “If I had known about reverse mortgages five years ago, she would still be living in her house, which she still pines for.”


Reverse mortgages were created in 1987 by the Department of Housing and Urban Development to provide greater financial security to homeowners age 62 and older.
Branch Manager Pam Turner, Realty Mortgage Corp., helped her mother with a reverse mortgage. Turner said the interest rates are lower than a traditional mortgage.


“With my mom, I don’t want her place,” Turner said. “It doesn’t matter what is owed on that place when it’s all said and done. She needs the money now. To me, if they need it, they need to take the max out.”


A homeowner who allows reverse mortgage payments to increase checking or savings balances beyond certain limits may lose government benefits, according to the American Institute of Certified Professional Accountants.


Caution is required because reverse mortgages can be prohibitively expensive unless the homeowner has a substantial amount of home equity, according to the AICPA. Information about reverse mortgages can be found online at www.aicpa.org.


If a couple is married and one passes away, the other can still live in the home until they die, according to Jennifer Fenn, loan originator for Barrett Mortgage.


“They have to realize that when they do a reverse mortgage they are borrowing money on the equity in their home,” Fenn said. “They are going to be out a little expense to see how much they can borrow, maybe $700-$1,000 in appraisal costs, credit fees and things like that. The worst part is knowing their home is not going to be debt-free while they are alive. But it’s going to supplement their income.”


When both married individuals pass away, the loan becomes payable usually within about 90 days, according to Fenn.


Note: This article is offered for informational purposes only. All financial decisions should be made after careful study and research, and consultations with personal financial advisors.