Tap Your Home for Income With a Reverse Mortgage

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Tap Your Home for Income With a Reverse Mortgage

Record numbers of seniors are taking out loans to cover high health care costs. But the number of seniors declaring bankruptcy in recent years is also skyrocketing. If you own your own home, a reverse mortgage may be a safer option than a traditional home equity loan or credit cards.

A reverse mortgage is available nationwide to homeowners age 62 and older. It enables you to convert part of the equity in your home into tax-free income, without selling, giving up title, or taking on a new monthly mortgage payment. You may spend the loan funds however you wish, and can take out the loan as a line of credit, lump sum payment, fixed monthly payments, or a combination. The loan size depends on your age and other factors, and the loan doesn't have to be repaid until you move out of your home permanently.

Money you receive from a reverse mortgage will not affect Social Security, Medicare or pensions that are not based on need. Proceeds from a reverse mortgage may, however, affect “need-based” benefits such as Supplemental Security Income (SSI), Medicaid, food stamps, rental assistance and certain other state benefits. According to The American Bar Association’s Legal Guide for Older Americans, the reverse mortgage proceeds generally will not affect eligibility for benefits if you spend the money during the month in which it is received. But, if you do not spend the money during that month, it will be counted as a resource for SSI, Medicaid and other low - income programs. If your resources exceed the allowed limit your benefits could be reduced or eliminated. State rules vary — it is highly important to check the rules in your state.

Rules are different for reverse annuity mortgages. This type of reverse mortgage allows you to receive loan payments under an annuity even after you move from your home. Reverse annuity mortgage payments are counted as income for SSI, Medicaid and other income-based benefits even if spent in the month in which they are received. They reduce benefits and may affect your eligibility altogether. Annuities also receive less favorable tax treatment.

Reverse mortgages are very complex, says the American Bar Association (ABA), and involve difficult financial, legal and personal decisions. The ABA advises careful examination of contracts and to look for alternatives that may suit your needs.

For more information: The American Bar Association Legal Guide for Older Americans, The Law Every American Over Fifty Needs to Know, 1998, $13 at bookstores.

For a FREE booklet about reverse mortgages ask for, “Just the FAQs: Answers to Common Questions About Reverse Mortgages,” from the National Reverse Mortgage Lenders Association, 1625 Massachusetts Ave., NW, Site 601, Washington, DC 20036-224 or call toll free 866-264-4466. Website address: http://www.reversemortgage.org.

May 2003