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Would a reverse mortgage help out in my case? How do those work?

If she has equity in a home and is 62 or older, a reverse mortgage can supply (at a potentially steep price) a way to use that equity, instead of selling the home.

The bank will lend her money based on her home's value. The fees will be based on the value of her home, not based on the amount that she borrows, so the fees will be higher than a regular (forward) mortgage, since she won't be allowed to borrow the entire valuation of the home. If she currently has a regular mortgage, that mortgage needs to be paid off with the proceeds from the reverse mortgage. Then with any additional borrowing power left, she can either get a lump sum, monthly payments (like an annuity) or use the loan like a HELOC, and borrow additional money when she chooses to.

She is required to pay taxes, homeowner's insurance and keep the home in good repair. If she doesn't, the lender may do so and charge her for doing so, or possibly, foreclose on her home.

The balance of the mortgage will grow each month - there will be a service fee charged, plus interest on the (growing) balance. The lump sum option is the only option that allows for a fixed rate reverse mortgage, so if she doesn't choose that option, she will get a variable rate reverse mortgage.

When she moves out of the home for more than 6 months, or dies, the mortgage needs to be repaid. If the home cannot be sold for more than the value of the mortgage, the bank eats the loss. If the house is sold for more than the balance owed the bank (borrowed amount, fees, interest, etc.) plus selling costs, she, or her heirs, will get the extra money.

We looked at a reverse mortgage for my mother, but she eventually decided to sell her house and move to a cheaper locale, in part because of how expensive a reverse mortgage would have been.

AARP has some good educational information on reverse mortgages.

If your MIL is interested in getting a reverse mortgage, she should probably get one sooner rather than later. Lenders are getting out of the business, so less competition is likely to make them more expensive in the future.

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