With nearly 28 million Americans already at or past the age of 62, the need for long-term health care is growing. Currently, the cost of long-term care is paid primarily by consumers and the federal Medicaid program to skilled nursing facilities, but many older Americans, even those with serious health issues, would rather live at home. The challenge they face is that in-home care can be prohibitively expensive. Now, however, there is an option: a reverse mortgage.
Reverse mortgages have been around seemingly forever, but the most recent and popular format is the U.S. Department of Housing and Urban Development (HUD) program known as HECM, which allows senior citizens to convert equity in their house into cash. For many, home equity provides a financial resource that can make a huge difference in a family’s ability to pay for long-term care.
A reverse mortgage brings in tax-free income, but the homeowner retains title to the property and doesn’t take on new monthly mortgage payments. According to Darryl Hicks, associate director of the National Reverse Mortgage Lenders Association (NRMLA), “The biggest misconception is that a person does not retain ownership of their home, and that is simply untrue. You always retain ownership.”
You may qualify for a reverse mortgage even if you have an existing mortgage on your home. Once you are approved, the funds can be disbursed in one lump sum, in fixed monthly payments, as a line of credit or as a combination of any of these three options. Proceeds from a reverse mortgage can be used for almost any purpose, from supplementing retirement income to preventing foreclosure.
No monthly payments are due while the loan is outstanding, but the loan must be repaid when you no longer occupy the home as a principal residence. The amount owed on the reverse mortgage can never exceed the value of your home, and the difference between what you owe and what your home sells for will return to your estate.
You should consider a few factors before applying for a reverse mortgage, including upfront costs, how long you intend to stay in the home and less-expensive ways to obtain money to pay for health costs and other necessities. Your decision should depend on your individual situation, but, if you meet the criteria and wish to remain at home rather than in a nursing home, a reverse mortgage might well be a viable option.
HUD requires all applicants to receive advice from an approved counselor to make sure the program is right for them.
“The bottom line is to work with a lender you are comfortable with before signing any closing documents,” says Hicks. “Be sure you understand everything, and don’t be afraid to ask questions.”
Stacy E. Domingo