Reverse mortgages are an often misunderstood tool that seniors can use to make home modifications, pay for long term care, and provide senior care that would otherwise be unaffordable.
Reverse mortgages aren’t the best option in every situation, but its ability to provide much needed dollars without immediate payment offers relief to many elderly homeowners.
- A homeowner can never owe more than their home’s value.
- A homeowner will never be forced out of their home.
- The loan becomes due after the last borrower sells the home, is out of the home for more than a year, or passes away.
- Reverse mortgages do not affect Medicare or Social Security Benefits, but they may impact Medicaid and some veteran benefits.
- A homeowner can borrow between 20%-70% of their home’s value.
- There are no restrictions on how the money from a reverse mortgage can be used.
What is a Reverse Mortgage?
A reverse mortgage is a loan against your home’s equity. The lending bank will make payments in a single lump sum, monthly installments, or as a line of credit. The loan is paid back when the last borrower (if a couple signs together) sells the home, is out of the home for over a year, or passes away. In most cases, the lender is not paid back in installments, but rather through selling the house. The lender is paid back the full loan amount plus the accrued interest.
Although there are several reverse mortgage options, a Home Equity Conversion Mortgage (HECM) is an option that many find most useful.
When Should You Consider a Reverse Mortgage to Pay for Long Term Care?
Whether or not you should consider a reverse mortgage to help pay for senior care depends a lot on how your situation aligns with the way reverse mortgages work.
Single or Married in Poor Health: If you are single and in poor health, you will most likely be better served to sell your home and take the lump sum to help pay for long term care.
Single or Married in Fair Health: If you are single or married in fair health but one or both members need some support to stay in the home, a reverse mortgage could provide the financial boost needed to pay for long term care since the loan will not need paid until after the last borrower passes away or moves out of the home for more than 12 months. Sometimes reverse mortgages are utilized when one member of a married couple needs skilled care and the other member can maintain a level of independence. In this case, a reverse mortgage allows for the more independent member to stay in the home while providing the financial means to care for the person needing more attentive care.
What are the Requirements and Recommendations for Reverse Mortgages?
Age: Seniors must be at least 62 years old before they qualify for a reverse mortgage, but there is no maximum age limit. Older seniors are eligible for higher amounts.
Health: There are no health requirements or medical exams necessary for a reverse mortgage since the structure of the loan requires that repayment be made after the home is no longer a consideration and the payment of the loan is found in the house’s equity.
Financial Health: Financial stability is a consideration in obtaining a reverse mortgage. Since the borrowers are not making monthly payments, lending institutions instead focus on the borrower’s ability to maintain the home. If this ability is questioned, the borrower may be required to set aside a portion of the proceeds to cover these costs.
Mortgage Debt: The reverse mortgage must be the primary debt against the house. However, it is common for there to be remaining mortgage debt at the time of the reverse mortgage. In these cases, a portion of the reverse mortgage is used to pay off the remaining mortgage debt.