Reverse mortgage & LTC

Should You Use A Reverse Mortgage To Pay For Long-Term Care?

When it comes to considering long-term healthcare costs in retirement, few retirees include these costs as part of their budget.  As Medicare will not cover long-term care insurance, and the cost of this coverage has increased due to the insurance companies pricing the coverage to more fully reflect the actual usage, people are looking for alternative ways to provide this care.  One potential is using the proceeds from a reverse mortgage. 

Reverse mortgages can certainly be used to pay for long-term care as there are no restrictions on the use of the proceeds from these mortgages.  The amount an individual can receive is based on the appraised value of the home, the age of the younger borrower on the title and the current interest rate. As interest rates rise, the amount you can borrow decreases.

While a reverse mortgage may be an attractive option in certain cases, there are, however, several unknowns that enter into this use of these vehicles.

With a reverse mortgage you receive a lump sum or a check each month from the bank or mortgage company and you never have to pay them back as long as you live in the house.  If the loan is made to a married couple, then no repayment need be made until neither spouse is living in the home.

An issue to consider is the requirement that the homeowner cannot move from this residence with the reverse mortgage.  Should the homeowner need care in a nursing home or other care facility, the loan is repaid, plus interest. If the family members cannot pay the loan off, the house will be sold. 

There is also the timing of the real estate market.  As the reverse mortgage is based upon the appraised value of the home at the time the documents are processed, to get the most benefit of this mortgage you would be counting on a strong real estate market with a consequently high appraisal for your home.

Finally it is important to consider the costs involved in processing the reverse mortgage documents.

There are several options to provide individual long-term care insurance and a thorough review of your financial situation is the necessary first step to determine what is most appropriate.  As always, we are more than happy to work with you in the process.

 

Presented by Mary Moore, CFP®

Mary