Reverse Mortgage - a loan program to provide one-time or monthly cash payments, a line of credit, or all three, for the equity in an older person's home without selling the home.
Reverse mortgages provide a stream of income for an older person who has most of their equity tied up in a house and who needs cash for day-to-day expenses. A financial institution will provide a series of monthly payments, based on the value of the house, in exchange for all or part of the ultimate proceeds from the sale of the house. Reverse mortgages can also be paid out as a lump payment, by providing a line of credit to be used when needed, or some combination of all of these methods. A reverse mortgage will allow an older person to convert the value of their home into cash, without requiring him or her to sell the house. Reverse mortgages may be available as federally- guaranteed loans through HUD and FHA, or as private market transactions. However, there are a variety of questions consumers need to ask about terms, conditions, and costs, to ensure they are getting the best deal.
Another consideration comes into play if the older person is likely to end up in a nursing home on Medicaid. The home is an exempt asset for purposes of calculating Medicaid eligibility, which means a person who needs nursing home services and who has no other significant source of revenue is likely to qualify for Medicaid services without the need to reduce the value of that asset. On the other hand, since many home and community services are not covered by Medicaid, a low-income older person who is trying to remain at home for some period of time prior to a nursing home admission, could use cash generated from a reverse mortgage to buy that time. There are a variety of other complex issues related to the interplay of Medicaid eligibility and reverse mortgages, which may require advice from someone with expertise in Medicaid law.