This is Part 6 of a 6-Part Series for families regarding ways to pay for elder care services in Indiana. This information accompanies the 23-page e-book/guide called “A Family Guide to Paying for Elder Care Services in Indiana“, available for free download HERE.
Reverse Mortgages Can Help Pay for Elder Care Needs
Reverse Mortgages (Home Equity Conversion Mortgages) have become a popular and well respected way for seniors to access the equity in their homes for many reasons. Some use the equity for long-term care needs, to pay bills, pay off existing mortgages or debt, pay for prescription drug costs, home improvements, home modifications, or to simply be able to enjoy life a little more by traveling and enhancing their retirement cash flow. Many seniors use reverse mortgages to pay high property tax bills, and have even been saved from foreclosure and bankruptcy because they applied for a reverse mortgage.
Each consumer should make it his or her own responsibility to talk with an expert, and educate themselves on the facts.
The National Reverse Mortgage Lenders Association has great consumer booklets- www.reversemortgage.org .
The National Council on Aging recently did a study that concluded that reverse mortgages are good sources of funds for long-term care planning and long-term care needs. You can download the entire study by visiting www.ncoa.org
Although there are closing costs associated with these loans, most, if not all of them are factored in to the loan, and are not out-of-pocket expenses for the senior. Whether or not a reverse mortgage is right for a senior depends on their specific situation, and cash flow or estate planning needs.
What is a (HECM) Reverse Mortgage?
A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you.
Who Qualifies for a Reverse Mortgage?
Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (built after June 1976), condominiums, and townhouses. As long as you own a home, are at least 62, and have enough equity in your home, you can get a reverse mortgage. There are no special income, credit or medical requirements.
How Are Seniors Protected? Counseling is one of the most important consumer protections built into the program. It requires an independent third-party to make sure the senior understands the program, and review alternative options, before they apply for a reverse mortgage.
How Can the Cash Flow From a Reverse Mortgage Keep Mom and Dad at Home Longer?
The cash flow from a reverse mortgage can be used for any purpose. In order to keep seniors safe and at home for longer periods of time, it is recommended that the cash flow be used for home modifications, repairs, personal emergency response systems, and in-home care services.
Does the Senior’s Name Remain on The Title to the Home?
The seniors’ names remain on the title to the home. The bank is not in the business of taking over title, and certainly not in the business of owning homes. Therefore, just as with a traditional mortgage, the senior’s name is on the title to the house.
Can Their Home Be Taken Away from Them?
When a senior implements a reverse mortgage, it is important to remember that they are responsible for keeping the home owner’s insurance in force, paying annual property taxes, and for general upkeep of the home. Unless one of these criteria is not met, their home can never be taken away from them.
Will Heirs Be Responsible for Repaying This Loan?
No, a reverse mortgage is a “non-recourse” loan. This means that the lender is only entitled to loan repayment via the sale of the home for fair market value. If there is any remaining equity over and above the final loan amount, the heirs receive that remaining equity. If the home sells for LESS than the final loan amount, the federal government steps in and pays the lender the difference. Heirs’ assets are never at risk.
When Does the Loan Come Due?
The loan comes due when the last remaining homeowner leaves the home permanently. This means that the loan will come due when the last homeowner passes away, sells the home, or leaves permanently (12 months or more).
Can Mom and Dad Still Leave Their Home To Their Children?
Yes, with proper planning they certainly can. One way to make sure that heirs receive the value of the home is for the seniors to purchase life insurance using the proceeds from the reverse mortgage. Some seniors end up doubling or tripling the value of their estate for their heirs because they use the reverse mortgage proceeds to pay the life insurance premiums. This way they never have to touch a penny of their savings, investments, or current income to increase the value of their own estate. This also helps the heirs, because inheritance passed on through life insurance (beneficiary designation) bypasses probate and taxes!