Reverse Mortgages and Eldercare: What You Need to Know

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Reverse Mortgages and Eldercare: What You Need to Know

When you don’t have long-term care insurance and need services that Medicare doesn’t cover, a reverse mortgage may be able to help you pay for in-home eldercare. If you have to leave your house for more than a year at a time to get care in a nursing home or assisted-living facility, that might also be a strain.

The guidelines in this article apply particularly to a mortgage with a home equity conversion (HECM).The Federal Housing Administration exclusively insures the HECM, the most popular kind of reverse mortgage (FHA).

Key Takeaways

  • Eldercare expenses may be covered by a reverse mortgage for homeowners 62 years of age or older.
  • Once the homeowner has been living elsewhere for 12 months straight, the reverse mortgage becomes due and payable.
  • Reverse mortgage borrowing is a significant financial choice that senior homeowners should carefully consider.

Why Use a Reverse Mortgage to Pay for Eldercare?

The majority of individuals lack long-term care insurance. They could not be aware that it exists, be unable to buy it, or believe that it is a wise use of their money. They could also believe, incorrectly, that Medicare will pay for their long-term care requirements. As a consequence, elderly folks may discover that they require help with what Medicare refers to as “activities of daily living” all of a sudden. Such help is often required as a result of an illness or accident, and people who need it may find themselves with no other option for paying for long-term care but to squander down their assets until they become eligible for Medicaid.

Selling the house and using the earnings to assist pay the monthly expenses of living in a care facility might be one option to get the funds for such care. You could wish to continue in your own home if your requirements are not critical enough to need assisted living or a nursing facility, however. Because you may buy care by the hour rather than by the month, it may not only be more pleasant but also cost less.

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You may not be able to afford in-home care if your retirement funds and salary are just sufficient to get by. A reverse mortgage may be useful in this situation. These loans let you to access the equity in your house without having to leave it, without having to meet specific income or credit requirements, and without having to make any regular payments.


the proportion of people over 50 who would choose to remain in their current residence over relocation into a nursing home or assisted-living facility

How to Use a Reverse Mortgage to Pay for Eldercare

With the aid of a reverse mortgage, homeowners who are 62 years of age and older may access the equity in their homes as a lump amount, a line of credit, a stream of monthly payments, or a mix of monthly payments and a line of credit. You may obtain more money from a reverse mortgage the more equity you have. You could not be eligible if your equity is less than 50%.

The ideal approach to utilize a reverse mortgage to pay for eldercare may be via a line of credit. The amount of available credit increases over time, and interest is not charged on your credit line until you actually use it.

A reverse mortgage line of credit may be obtained at age 62, and you could let it grow before using it for a decade or more. Alternatively, you might put off applying for a loan until you truly need one. Both alternatives have advantages and disadvantages, but reverse mortgage specialists like Jack M. Guttentag, who runs the website Mortgage Professor, have shown how for certain individuals, opening a HECM line of credit as soon as feasible may be helpful.

What happens with my reverse mortgage if home care is no longer enough?

You must occupy the property as your primary residence in order to maintain a reverse mortgage, which is a crucial requirement. Your debt becomes due and payable if you cease residing there for a period of 12 months in a row owing to medical or mental sickness.

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How will the loan servicer know that you’ve moved out?

They may not, but you must sign a yearly certification confirming that the house is your primary residence even if they don’t. If you provide false information, you will be engaging in occupancy fraud.

How will I repay my reverse mortgage if I have to move into assisted living?

Consider that you have spent the last 11 months at an assisted-living facility and have used your reverse mortgage line of credit to pay the rent. You’ve now crossed a critical threshold. You should probably remain in assisted living if your physical health hasn’t improved. Your house will no longer qualify as your primary residence, so you’ll have to formally vacate it and pay back the reverse mortgage.

You have two options: either you make a deed in lieu of foreclosure, giving the lender the home’s title in return for being released from the obligation, or you just let the lender foreclose, sell the house, pay off the loan with the sale profits, and then give you any leftover money. This decision, however, only makes sense if you owe more on your house than it is worth. Since a reverse mortgage is a non-recourse loan, you won’t be responsible for making up the difference.

You may sell your house to pay off the debt if it is worth more than what you owe. You will be responsible for paying back the money you borrowed plus interest, together with any costs you paid to obtain the loan as well as any upfront and ongoing mortgage insurance payments (MIPs) for the duration of the loan.

You’ll walk away with some cash after paying a real estate agent to sell your property and covering any other closing expenses, assuming that your home is worth more than the total of those liabilities. The issue is whether that money, together with your other assets, will be sufficient to cover your costs for the rest of your life, including assisted care.

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What if my spouse wants to keep living in the home after I move out?

If your spouse is a co-borrower, they may continue to reside there while you both continue to make payments on your loan. Otherwise, you should be aware of the safeguards for non-borrowing spouses under reverse mortgages.

It basically comes down to when you took out the loan and whether you were married to your present spouse at that time to determine the regulations for non-borrowing spouses. Your spouse may be permitted to continue residing there while delaying debt payments. You’ll need to find another method of funding your care since neither of you will be able to continue drawing from the credit line.

The Bottom Line

For senior homeowners who have a lot of equity in their house, a reverse mortgage may be a useful financial instrument. They may be given opportunities to pay for eldercare at home that they would not have otherwise had. If you need to permanently relocate from your home and into an assisted-living facility or nursing home, it may also turn into a costly duty.

Every plan to pay for elder care has some risk. It’s critical to comprehend your selections so you may choose the solution that seems the most natural to you.

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