Numerous financial issues must be taken into account while retiring. If your health is starting to deteriorate, long-term care may be required in the future.
Although long-term care, whether in an assisted living facility or a nursing home, may lengthen your life, it is not inexpensive. The average cost of a shared room in a nursing home in 2021 is $94,900, according to the American Council on Aging. How is that affordable for the typical American?
A reverse mortgage can seem to be a good choice for homeowners. This technique uses the equity that has grown in a property and is only accessible to homeowners who are 62 years old and older. This does provide you access to money, but whether it’s the correct choice for you depends on a few different things.
- Long-term care is one of the many uses for home equity conversion mortgages (HECMs).
- The house will be sold to pay off the mortgage and interest if the borrower has been absent from it for more than a year in a row.
- Since the reverse mortgage doesn’t have to be paid back until the final borrower vacates, joint borrowers have greater flexibility.
How a Reverse Mortgage Works
A reverse mortgage is a loan that you get from a lender and is secured by the equity in your house. The lending company gives you money based on the equity in your house rather than having you make monthly payments to the bank. The money may be disbursed as a single payment or in instalments. We’ll talk about a Federal Housing Administration-insured home equity conversion mortgage (HECM) (FHA).
Reverse mortgages are well-liked since they often don’t need to be repaid until the borrower dies, with the remaining principal and interest being covered by the sale of the house. Borrowers often qualify for a reverse mortgage if they have either fully paid off their home or have a sizable amount of equity in it. The FHA HECM limit of $970,800 or the lesser of the assessed value of the house determines how much may be borrowed.
Remember that if you have previously had a qualified hospital stay, Medicare Part A will cover part of your skilled nursing care. You won’t have to pay a co-insurance fee for the first 20 days. After that, for days 20 through 100, you are liable for a co-payment of up to $194.50 each day. The expense of long-term care is thereafter solely your responsibility. Look into long-term care insurance if you expect a longer stay.
Paying for Long-Term Care
Flexibility is a HECM’s main benefit. Both fixed-rate and adjustable-rate HECMs are readily accessible. Unlike adjustable-rate reverse mortgages, which provide a variety of payment choices, fixed-rate reverse mortgages are normally paid in one lump amount. These alternatives include:
- Equal monthly payments for a certain period of time.
- Equal monthly payments are required for as long as the borrower is alive and a resident of the property.
- Line of credit: Continual financing within certain limits
- Modified tenure: A line of credit and tenure combination.
- Modified term: A line of credit and term combined
There are no restrictions on how you may utilize the funds, regardless of the fundraising strategy you choose. Many people use it for regular costs, home improvements like stair lifts and railings to make their homes more accessible, or even for in-home nursing care.
However, there is a catch: money from a reverse mortgage cannot be used to pay for long-term care if the homeowner requires it. One of the requirements for reverse mortgages is that the borrower cannot spend more than 12 consecutive months living somewhere else, such a nursing home or assisted living facility.
The reverse mortgage would need to be paid off after a year, perhaps by selling the house. This may not be a problem if there is just one resident. The borrower must leave the house in order to sell the property and pay off the debt if they have a spouse or other dependents who are not included on the reverse mortgage.
Joint Borrowers Have Options
Applying for the reverse mortgage jointly if you’re a couple will assist avoid any problems. Even if the other borrower has permanently relocated to long-term care, the tenure payments will still be made as long as one of the borrowers occupies the home as their principal residence.
Can dependents live in my house if I move to long-term care?
Unfortunately, the reverse mortgage will need to be paid off after the last borrower has been gone from the property for more than 12 months in a row. Typically, this entails selling the home and utilizing the profits to pay off the remaining portion of the loan. Any dependent adults will have to find other housing.
Will Medicare pay for long-term care?
Medicare Part A would cover the first 20 days of your stay in a skilled nursing facility if a doctor recommended it following a hospitalization. After that, days 21 through 100 need a co-pay. All expenses are your responsibility after 100 days.
Can I use reverse mortgage funds for in-home care?
Yes. You may use your reverse mortgage to pay for home nursing if that is all you need. Only leaving the home for more than a year at a time, not paying homeowners insurance and property taxes, or failing to maintain the property will result in a reverse mortgage repayment.
The Bottom Line
Married couples who jointly hold a reverse mortgage may utilize the payments to help with long-term care expenses. The bank will sell the house to recoup the debt after the final borrower on the loan enters permanent long-term care. The reverse mortgage should be signed by both parties in married couples. Otherwise, the surviving spouse could need to locate new housing if the mortgage holder requires long-term care away from the property.
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