Since you’re going to be calling your mother more often anyway, you could mention this in one of your next conversations: reverse mortgages.

A reverse mortgage, also known as the Home Equity Conversion Mortgage (HECM), is intended for homeowners age 62 or older who have accumulated equity in their home and want to use this to supplement their retirement income. Borrowers are still responsible for the taxes and insurance on the property and must use it as their primary residence for the duration of the loan.

The easiest way to explain the reverse mortgage is by comparing it to a traditional mortgage. In a regular “forward” mortgage, the borrower makes monthly payments to the lender, gradually reducing the loan balance and building equity. With a reverse mortgage, the borrower receives payments from the lender, the loan balance grows over time as the borrower receives payments and interest accrues on the loan, and home equity declines over time. Essentially, the mortgage works in the reverse direction of a forward mortgage, hence the term “reverse.”

The HECM is a program of the Federal Housing Administration (FHA) that began in 1961. The loans are guaranteed by the federal government, which means that you do not need to worry about your reverse mortgage lender failing to make payments to you. In 2009, the HECM for Purchase was introduced. Since then, borrowers are allowed to purchase a new home without paying monthly mortgage payments. The FHA removes the risk of the lender going bankrupt or simply refusing to make good on its obligations.

You are eligible for a reverse mortgage if:

• You are 62 years of age or older
• You own your home and use it as your primary residence
• You own your own home free and clear or only have a small amount left to pay on the existing mortgage
• Your home is in good condition prior to taking out the loan

If you are eligible and the product is suitable for your needs, a lender can offer you fixed monthly payments or a line of credit based on the value of your equity. Though there are other factors involved, you can think of the lender giving you a loan based upon how much equity you have in the property.  It is important to note that reverse mortgages are designed so that the amount owed cannot exceed the value of the home. If, for example, a reverse mortgage balance is $150,000, and the house is sold for $125,000, the borrower does not owe the difference. In such circumstances, the FHA covers the difference. By contrast, if the house can be sold for more than the value of the reverse mortgage, that equity belongs to the borrower or the borrower’s heirs.

Something to think about.

Here is a link to a page on the HUD website about this.

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