Ins and outs of reverse mortgages

Are you looking for ways to pay for long-term care like assisted living, nursing home care, or in-home personal assistance?

Finding ways to pay is among the top challenge for families.

The monthly fees for senior housing can range from $120 a day for assisted living, and $240 a day for a nursing home.

If you prefer to stay at home, you may find a professionally trained caregiver to help you out for $15 to $20 an hour.

There is no way to avoid the high costs, but there are ways you can put a home's equity to work for you through a reverse mortgage.

What is a reverse mortgage?

It's a mortgage loan that leverages the equity in the home. It's called a "reverse" mortgage because the lender makes payments to the borrower, not the other way around.

The borrower does not pay back the loan until it's sold or vacated. And as long as the borrower or co-borrower (a spouse) lives in the home, no monthly payments are due on the loan balance.

If a borrower moves to a residential care facility, then the co-borrower (a spouse) must pay the property taxes, the homeowners insurance, and any association dues.

The loan is due in full when the last borrower, the remaining spouse, dies, sells, or permanently moves out of the home.

What comes due depends on the payouts and interest of the loan

Borrower requirements

A borrower must be over 62 years of age, have no liens on the property, be the borrower's or co-borrowers primary residence, and do needed repairs. There are no health or medical qualifications to meet.

qualifying Homes

The property that qualifies is a single-family home, a two- to four-unit property, a manufactured home (built after June 1976), condominium, and townhouse. Cooperatives are not eligible.

Are funds subject to taxes?

No, the reverse mortgage funds are not counted as taxable income because the borrower owns the equity.

The home is an asset, and the borrower does not report or pay taxes on the cash received, nor does it affect Social Security or Medicare benefits.

However, if the borrower is on Medicaid or Supplemental Security Income, the reverse mortgage funds could impact eligibility.

How much money can a borrower get?

It depends on the ages of the debtor and spouse, the appraised worth, interest rates, and the FHA lending limit, which is currently $625,500.

How to use the reverse mortgage proceeds?

They can cover living expenses, home repairs, health care, pay off debt, pay taxes, or to prevent foreclosure.

Before applying for a reverse mortgage, know the facts and do your homework. Don't fall for misleading claims like, it's a "lifetime income" or you'll "never lose the home."

If both borrowers sell the property or move out for more than a year, the loan is due immediately.

When sold upon death, the proceeds go to pay the loan, not the heirs.

Carol Marak is the creator of the Aging Matters column. If you have a question or need help, she invites you to visit SeniorCare.com and complete the contact form on the site.

The address is http://www.seniorcare.com.