It's bad public relations to throw Granny out of her house, so banks are getting choosier about making loans. In the past, you could get a reverse mortgage without a credit check. Now, you might have to show that you'll still be able to pay your bills when the reverse mortgage money runs out. If the banks turn you down, consider it a timely warning. To avoid eventual foreclosure, sell your home now, grab whatever home equity you still have, and make other living arrangements.
If married couples decide to take a reverse mortgage, be sure you're both on the loan. That way, either one of you can remain in the house without repaying the loan if the other spouse dies or enters assisted care.
Under current HUD policy, spouses who aren't on the loan are forced to repay if they want to keep the house. If they don't have the necessary assets, the home is sold out from under them. AARP considers this a misreading of the law and has filed a lawsuit, according to AARP senior attorney Jean Constantine-Davis.
If the spouse or other heirs do want to buy the house, they owe the lesser of either the total loan amount or 95 percent of the home's current market value. Some lenders have tried to charge relatives the full amount of the mortgage balance, including all fees and even if it's more than the house is worth. So know your rights. For details, go to hud.gov and enter "reverse mortgage" in the search box. Be warned that it's a high-cost loan, especially if you borrow in your 60s.
But here's an interesting thought for people in their 70s who have a substantial nest egg: You might use the income from a reverse mortgage to reduce the amount you have to withdraw each month from your savings. That leaves you with more liquid money invested for growth, which could help you pay the bills for many years more.
You may also like: An escape route from foreclosure.
Jane Bryant Quinn is a personal finance expert and author of Making the Most of Your Money NOW. She writes regularly for the Bulletin.