Home Equity

Sale of your home

One of the most difficult decisions you may face as you age is whether it is time to leave your home and move to a more supportive setting, such as an assisted living facility or nursing home. Consider several factors as you decide whether staying in your own home makes sense. For many people, a house that was ideal 30 years ago may now be too difficult to handle alone. For suburban and rural elders, isolation can become a problem when driving is difficult. Deteriorating neighborhoods may also make an older person reluctant to go shopping or attend social activities. Being able to get good quality and reliable help, either from family caregivers or paid professionals, is another critical factor.

Important considerations

• If you sell your home, you will not be able to pass it on to your heirs.
• The sale price may not be enough to pay for your long-term care needs.
• Market conditions will affect the selling price of your home.
• You may have to pay taxes on the capital gains from the sale of the house, depending on the sale price compared to your original purchase price and other considerations. Consult your tax advisor for details.

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Sale-leaseback

A sale–leaseback is an arrangement where you sell your home to an investor, typically at below market value, and then you remain in the home as a renter. You essentially rent your home from the investor on a long-term lease. You are no longer responsible for home maintenance or paying taxes. You can use the proceeds from the home sale any way you like. The investor takes over the property once you stop living there.

Important considerations

• Because the investor takes over ownership of the property—even though you continue to live there—your home will not stay in your family.
• You could face a high tax payment on the proceeds from selling your home.
• You may not qualify for public assistance as a result of the income you gain from the sale of your home.

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Reverse mortgage

A reverse mortgage is a special type of home equity loan available to people age 62 and older. The homeowners borrow part of the equity in their home and the principle and interest on the loan are not paid back until the last borrower (such as the remaining spouse) dies or moves out. This may be an option to consider if you expect to live in your current home for several years. Some features of a reverse mortgage are:

• You receive cash against the value of your home without selling it.
• You choose whether you want to receive a lump-sum payment, a monthly payment, or a line of credit.
• There are no restrictions on how you use reverse mortgage funds.
• No credit history is required.
• No monthly payments are required.
• The funds you receive from a reverse mortgage are non-taxable and do not count toward income or affect Social Security or Medicare benefits. Nor do they count as income for Medicaid benefits eligibility as long as the reverse mortgage payments you receive are spent within the month that you receive them.

You continue to live in the home and you retain title and ownership of it. You are also still responsible for taxes, hazard insurance, and home repairs. You do not have to repay the loan as long as you continue to live in the home.

You can use the funds you receive from a reverse mortgage to pay for a wide array of in-home and community services and other expenses, such as home repairs and transportation. These services can make it safer and more comfortable for you to live at home. However, your long-term care expenses may be greater than the amount you can get from a reverse mortgage.

You might also use the funds to purchase long-term care insurance. It may be difficult for a married couple to purchase long-term care insurance or pay for long-term care costs for both people with the amount available from a reverse mortgage.

For more information, visit the Office of Consumer Credit Commissioner website.

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