Cash flow for retired seniors may require accessing the equity in one's home. This is referred to as a reverse mortgage. A reverse mortgage allows the senior to tap into his or her home equity without making monthly payments (like on a home equity line of credit) and without requiring the money to be paid back during his or her lifetime. The cash is distributed to the senior each month to be used for living expenses and the like.
For those seniors who have low incomes but own a home with equity, a reverse mortgage can allow them to remain in the home by creating extra income. The homeowner retains full ownership of the property and the lien can be paid off at anytime.
To qualify for a reverse mortgage, you must be at least 62 years old, own your home and live in it as your primary residence. At death, the reverse mortgage is paid in full as part of the estate administration process. The bank has no recourse to demand payment from any family member if there is not enough equity to cover paying off the loan. The loan is not due and payable until the borrower no longer occupies the home as a principal residence. This may also include moving to a nursing home. At that time, the balance of borrowed funds is due and payable. If the heirs want to keep the home they have the option to refinance with a conventional loan.
The cash received from the reverse mortgage is tax-free (i.e. not included as income for tax purposes) and there are no restrictions on what the cash may be used to buy. There are several factors in regards to the amount of the monthly payments the senior will receive. As a general rule, older in age and larger amounts of equity qualify for larger monthly payouts.
At the death of the borrower or the sale of the home, the loan is repaid from equity in the home. Any remaining equity goes to the heirs. If your aging loved one needs additional cash flow and owns his or her primary residence, set up a consultation with Stouffer Legal to learn how a reverse mortgage can be a part of your overall estate plan.
