When it comes to helping an aging loved one with financial decisions caregivers want to make sure they take the time to understand all aspects of the transaction. One option for seniors that is becoming increasingly popular is to use the equity from their home to increase their cash flow. Some seniors need to pay off old home equity loans; others have credit card debt that they would like to eliminate. Some seniors need additional cash flow to pay in-home caregivers, and some need the money to simply be able to afford to pay their daily living expenses. Regardless of the reason, a reverse mortgage (also known as a Home Equity Conversion Mortgage) is a big decision for that senior and their family members.

Reverse mortgages have received a lot of press lately. NBC Nightly News, ABC, and CBS have all run stories. Of course there are pros and cons to reverse mortgages, but interestingly enough, two large organizations support and advocate them, especially for seniors who need long-term care.

A study released by The National Council on the Aging (NCOA) shows that reverse mortgages can be used by over 13 million Americans to pay for long-term care expenses at home, allowing many to remain independent and in their homes longer. The "Use Your Home to Stay at Home: Expanding the Use of Reverse Mortgages to Pay for Long Term Care" report, funded by the Centers for Medicare and Medicaid Services and the Robert Wood Johnson Foundation, also shows how reverse mortgages can alleviate financial pressure not only for individuals and families, but also for state Medicaid programs and the federal government.

Reverse Mortgage Pros

Reverse mortgages are backed by (and regulated by) the federal government (HUD and FHA). Seniors age 62 and older are eligible to use this federal program. This is a "non-recourse loan," which means that the heirs of the seniors are not responsible for repaying the loan. In fact, a reverse mortgage is a loan that does not have to be repaid unless both homeowners (assuming a couple) leave the home permanently, or pass away. No monthly payments are required. The senior is the one who gets paid.

The money seniors receive from a reverse mortgage is tax free, and does not interfere with SSI or Medicare benefits. For the senior or couple who are having trouble making ends meet, this can be a life saver.

Some seniors are using the extra cash flow to pay for in-home care, adult day care, pay for prescription drugs, pay off credit card debt, and make much needed home repairs so that they can live safely and more comfortably.

Many seniors’ homes have been saved from foreclosure by using their home equity to pay past due property taxes, or to pay off current mortgages that have become unaffordable.

Prior to completing an application for a reverse mortgage, seniors are required to attend a HUD Counseling session. This is designed to make sure the senior understands how the reverse mortgage works, and to answer any questions. They speak with a trained counselor either over the phone or in person. A certificate is sent to the senior after the counseling session is completed. This certificate must accompany the reverse mortgage application.