Should I Seek a Reverse Mortgage on Mom's House?

Dear Senior Living Adviser,

I am 62 years old, currently not working and just recently started to receive Social Security retirement benefits. Unfortunately, I have no retirement savings to rely on other than Social Security.

I am also my mother's caretaker and have her power of attorney. She is 91 but mentally strong. My mother receives a pension and Social Security benefits, and has an investment portfolio worth almost $500,000, which doesn't include the house.

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I am divorced and live with my mother, my daughter and my grandson in my mother's home. I was married for 23 years. My mother owns the home free and clear. Without going into too much detail, the house is willed to my sister and me. My sister lives in a co-op that she owns. I want to look into a reverse mortgage and would like to know what procedures I would have to go through, given the circumstances. I will, of course, be discussing this with my mother as well. -- Brenda Bequest

Dear Brenda,

There are four generations living under your mother's roof. Treating her home like a piggy bank by taking out a reverse mortgage when she has half a million dollars in investments, a pension and Social Security benefits is pretty shortsighted.

If you're acting on your mother's behalf, using the power of attorney to take out a reverse mortgage, you should know that the mortgage comes due when she dies, or after 12 months if she moves into a nursing home and is no longer using the home as her primary residence.

You can't change your mother's will with a power of attorney. While you may be able to sell the home using the power, I don't see how that serves you or your family's interests. Barring that, your sister will inherit half the home.

A reverse mortgage will diminish the equity that two sisters have in the home when you inherit. You may have more financial flexibility in taking on a reverse mortgage after you inherit, using the proceeds to buy out your sister's half of the home.

You taking Social Security benefits at age 62 reduced your monthly benefits by 25 percent. In the first 12 months that you receive retirement benefits, you can change your mind and pay back the money, withdraw your Social Security claim and reapply at a future date. If this is at all possible, you should consider this approach. If all you expect to be able to live on in retirement is Social Security, then taking steps to increase that income will do a lot to improve your standard of living in retirement.

What I'm suggesting is that you discuss with your mother and sister the idea of putting a caretaker agreement in place, where your responsibilities are laid out and your mother compensates you for taking on this role.

Divorced spouses that qualify for spousal benefits can, at their full retirement age -- which for you is 66 -- receive a spousal benefit. They can then earn delayed retirement credits on their work record and switch to a benefit based on their work record when they turn 70.

File for benefits before your full retirement age and the option to earn delayed retirement credits based on your work record goes away. On a different note, since you didn't remarry before age 60, you'll also be eligible for a survivors benefit should your ex-husband die before you.

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