Q: My father is 76 years old and has a $125,000 house with a small outstanding mortgage. Although the house is almost paid off, he cannot refinance because of his low income. Is there any way to use the equity in his home?
S. Thomas., Baltimore
A: This is common for older homeowners. There are many seniors who are "house rich but cash poor" and may not be able to qualify for standard refinancing. In the past, the only alternative has been to sell the house, then either move to less expensive rental housing or, in many cases, move in with relatives.
The Federal Housing Administration has authorized a loan program called the reverse mortgage. For homeowners over 62, it converts home equity into cash.
Patricia Wills of Unity Mortgage Corp. of Columbia said your father is probably eligible for such a loan.
According to Ms. Wills, to qualify for a reverse mortgage, you must be at least 62, own and occupy the house as your principal residence, and own the property free and clear or, if there's a small mortgage balance or property lien, the reverse mortgage proceeds must be enough to pay them off.
With a reverse mortgage, the lender does not expect you to make mortgage payments. Generally, no repayment is due as long as you live in the home. When you no longer live in the house, the loan becomes due and the typical way to repay is to sell the house.
The proceeds from this loan can be received in the form of a line of credit, a lump sum (some of which would be used to pay off existing home debt), or regular monthly payments to you as long as you live in the home. You choose.
With a reverse mortgage, the debt with the mortgage company continues to pile up, with interest, until the loan is repaid. But no matter how high the debt is, your maximum obligation is the value of the house itself.
The reverse mortgage has upfront fees that are generally larger than those for a conventional mortgage. But for older homeowners who would like to keep their home and still have access to some of the equity, it can be a lifesaver. For more information, call the American Association of Retired Persons at 202-434-2277.