What’s it worth?

Only you can decide what a reverse mortgage is worth to you. It probably depends most on what you would use one for: increasing your monthly income, paying of an existing mortgage, repairing or improving your home, or getting the services you need to remain independent in your own home.

It may be helpful in evaluating the worth of a reverse mortgage to consider a major alternative: selling your home and moving. Do you have any idea
how much money you could get by selling your home? what it would cost to buy & maintain or rent a new one? how much you could safely earn on sale proceeds not used for a new home? Seeing your housing alternatives first-hand and in-person may help you decide about a reverse mortgage.

You may find a different home, neighborhood, or community with an array of services or amenities that is much more attractive than you would expect to find. Or, you may only confirm what you were pretty sure of all along: that where you live now is easily the best place for you to be. Either way, looking will give you a much better idea of the overall costs and benefits of staying versus moving. That will give you a better sense of what’s valuable to you. And make it easier to evaluate the cost of a reverse mortgage.

What about public benefits?

Social Security and Medicare benefits are not affected by reverse mortgages. But Supplemental Security Income (SSI) and Medicaid are different. In general, these programs count loan advances differently than annuity advances.

Loan advances generally do not affect your benefits if you spend them during the calendar month in which you get them. But if you keep an advance past the end of the calendar month (in a checking or savings account, for example), then it will count as a “liquid asset.” If your total liquid assets at the end of any month are greater than $2,000 for a single person or $3,000 for a couple, you could lose your eligibility. (“Reverse Mortgages: A Lawyer’s Guide,” American Bar Association 1997.)

What about taxes?

An American Bar Association guide to reverse mortgages advises that generally
the IRS does not consider loan advances to be income annuity advances may be partially taxable interest charged is not deductible until it is actually paid, that is, at the end of the loan. (“Reverse Mortgages: A Lawyer’s Guide,” American Bar Association 1997.) Back to Top

What about “investing”?

Should you take a lump sum of cash from a reverse mortgage and invest it someplace? That’s generally a lousy idea – unless, of course, you can afford to lose money.

Remember, to come out ahead on any investment, you’d have to earn a greater rate of return on it than the TALC rate you are paying on the reverse mortgage. And the odds against doing that safely are mighty long.

A much better alternative is to take a HECM creditline. You only get charged interest on the cash advances you’ve actually taken, and the remaining available credit grows larger every month. And this growth is not an “interest” earning, so you are not taxed on it.