Thus, many homeowners learned that the home -- or the equity in the home -- that they planned to leave to their children and grandchildren had been greatly diminished.
Fortunately, many of these problems have now been corrected and loans now are more fair to the borrowers.
"Many seniors are sitting on the answer to their problems -- their home," said Peter Bell, president of the District-based National Reverse Mortgage Lenders Association. "By getting a reverse mortgage, where appropriate, seniors can take care of their own needs and live more comfortably and ease their kids' concerns as well."
Let's go back to our hypothetical situation. Say the equity in your mother-in-law's home is approximately $200,000. Thus, the maximum she can borrow from a reverse mortgage lender would be 80 percent of the equity, or $160,000. Depending on the reverse mortgage lender she chooses, there are several payment options:
• Get all the cash up front.
• Get a line of credit that allows her to write checks up to the limit whenever she needs the money.
• Receive a monthly annuity in an amount mutually acceptable to her and the lender.
What's the catch? That depends on the terms of the loan and the legal documents she will be asked to sign. It is important that her financial and legal advisers get involved in this transaction before she signs anything.
If your mother-in-law obtains a reverse mortgage, she will not have to make any loan payments during the term of the loan. But read the fine print of the mortgage documents carefully; is there a term limit to this loan? Most legitimate lenders will require only that the loan be repaid when the owner permanently moves out of the house (including both husband and wife) or when the house is sold.
The money received from a reverse mortgage can be used for any purpose. However, the lender will want to inspect the property. If it determines that certain improvements must be made (called "mandatory repairs"), a portion of the money that is borrowed will have to be earmarked for these repairs. The borrower will be obligated to complete the repairs in a timely manner.
