Q: I have a friend who has an older single parent. The parent is basically “house rich” meaning she has a lot of equity in the home but not a lot of cash on hand, or “liquid assets.”

Do you have any suggestions for her on how she might be able to use the equity to generate some liquid assets? We have been thinking of a reverse mortgage or selling the house to one of the children if they qualify for a mortgage and have her remain in the home.

She really loves the home and doesn’t want to move but I feel sorry for her because she is limited in what she can do because of her financial situation.

Thanks for any help you might be able to provide in this matter.

A: Please read up on reverse mortgages because it sounds as if your friend’s mother is the perfect candidate to get one.

If the single older parent is above the age of 62 and owns her own home, she would be eligible. The reverse mortgage would give her either a monthly stream of income or a lump sum, which would not have to be paid back until the house is sold.

While there are some fees associated with a reverse mortgage, they’re fairly nominal and are paid out of the proceeds of the loan, so the senior doesn’t have to come up with any cash. The problem with reverse mortgages tends to be one of perception: The future heirs believe that if their parent takes out a reverse mortgage, it will eat up any inheritance they may have otherwise received.

Unfortunately, this is the wrong way to look at it. The owner of the home is entitled to use his or her “nest egg” in order to enjoy the kind of retirement he or she wants. If that means being able to stay in a home she loves, your friend’s mother should be able to do that.

May 27, 2005