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The horror stories you hear of are largely something of the past now because of new regulations on reverse mortgages.
There's a limit on how much your total line of credit for the reverse mortgage can be relative to the value of the property, to prevent RMs from going underwater.
The borrower now has to have in-person counseling from a HUD accredited counselor before taking the RM, so they understand the risks and obligations.
Interest accrues, but just on the amount you've withdrawn, and it should be a reasonable percentage that you negotiate with the lender.
The loan becomes due if the borrower dies, moves out of the house for more than 12 months, or fails to pay the property tax or property insurance. So unless there's another way to repay, the property then has to be sold and the proceeds used to repay the reverse mortgage. You should have 90 days to repay and this can be extended 3x so you have a year.
one caution: If other people are living in the home and the borrower dies or has to move to a nursing home permanently, they will have to leave too so the property can be sold to repay the RM.
Also you can't have another loan when you have a reverse mortgage. My mom had a previous loan, so she had to use an initial chunk of the reverse mortgage to repay that loan.
The reverse mortgage was great for us because the value of my mom's property was relatively high - high enough that she wasn't eligible for Medicaid - and we already intended to sell the property when she died, and she wanted to stay in her home and needed care but not care that required her to be in a nursing home.
https://www.newretirement.com/retirement/new-reverse-mortgage-calculator-how-to-assess-your-suitability-for-these-loans
Take aways from just a brief run through:
*sounds like you won't get the total amount the home is assessed at
*it states most people do this to REMAIN in the home as long as possible
*you get to keep/live in the home for as long as one borrower lives there
Another site:
https://www.consumerfinance.gov/ask-cfpb/what-happens-if-i-have-to-move-out-of-my-home-into-a-nursing-home-or-assisted-living-and-i-have-a-reverse-mortgage-en-243/
I don't like what I have read and heard about these loans, and it certainly doesn't sound like this is the right method for financing LTC. When you say partner, are you married? The second link does indicate if a spouse or partner is a co-borrower and one of you has to move to LTC, the other can remain. If NOT a co-borrower, you'd have to pay back the loan (could be some serious interest!) or sell and move.
There is also the concern about housing markets - they are notorious for having ups and downs. So, what happens if you get a loan for say 80% of the value but at the time you need to sell and pay it back, house values have dropped, while interest has accumulated - would you have funds to cover the shortfall? (from the first link, it sounds like you won't get 100% - they have calculators for the actual loan value)
Then there is Medicaid....
"Reverse mortgage payments also may affect your eligibility for government benefits, including Medicaid. ... The unspent balance from a lump-sum reverse mortgage loan could put a borrower over the allowable asset limits for Medicaid or Supplemental Security Income (SSI) eligibility.Mar 2, 2017
Is a Reverse Mortgage Right for You? - Elder Law Answers
www.elderlawanswers.com"
I would think LONG and HARD before considering this option. Tom Selleck may be a nice guy, but he's being paid to do that ad for RMs... Some people will do and/or say anything to get the ad money...
& on a tangent to the “leaving house” so out of compliance which allows the RM to call in the loan. We went thru H. Katrina, couple of our friends had parents who lived in Lakeview area of New Orleans who had RMs. Very much slab on grade modest ranch-burger style 1 story 1960’s homes. Lakeview flooded big time... 8-15’ standing water for weeks, like needed a pirogue or canoe to get to areas. The RMs contacted the parents & required that they provide to the lender a repair and replacement plan in place with permits applied for and licensed contractor attached for work with a start date. And the date folks were to move back in. None of this was even remotely possible to do or figure out as it was chaos till spring / summer ‘06 unless you were in the sliver. Loans called in. Zero to their folks.
RMs will do whatever to reduce their risk, which means they call in the loan, close out the RM and sell that sucker ASAP. It’s not just RMs who did this stuff post K, all the insurers did whatever to delay, lowball or deny Katrina claims. But for the RMs it’s different than a traditional mortgage co., as RMs don’t care if the loan looses $ as HUD pays the difference. RMs have no reason to ever work with property owner, it’s not in their favor to be flexible and gracious.
Yeah in theory one could go on vacay for 10 months, but that property has to be maintained & kept repaired.... yard cut, insurance & taxes paid, mail picked up, etc. or it’s out of compliance & if you do anything to show a new address, your out of compliance.
To make a long story short, she was able to purchase the house because it had gone up so much in value she had equity. W's SS helped her too. Remember, she was on the deed. She has found a job (at 66 years old). Her daughter and roommate moved in with her as renters, to help pay the mortgage. Don't know how long this will last, so far it is working out but it was very iffy there for a couple of weeks. If it wasn't for this pandemic with housing purchases at a low, and mortgage companies hungry, she could have been in a pickle.
Before he died, he was sorry he had taken out the RM. I looked into it at one time and the interest rates and fees were awful.
I would think several times about it. Personally, I think I am lucky I am not married to a house. Having moved a lot in my life, I know there is always another place on the horizon. I also worked in Fire and have seen too many people lose everything and have to start over to think a house is the end all.
Please consult with a local eldercare attorney before considering any reverse mortgage. What would happen if the RM recipient living in the home needs long-term care that requires him to move out to a LTC facility? Also, receiving RM cash income will affect Medicaid eligibility, so it is also best to consider your future health which enables you to stay at home; looking at your family health history, too. It is like looking through a Crystal Ball. What may be the outcome? What about the desire to leaving assets to his or her heirs? These RM businesses are reaching out for really one thing: to make money! Do carefully think things out before committing to an RM contract. As said by LittleOrchid, once the RM contract is signed, you are locked in and cannot change your mind.
In short, the one thing you can count on is change. You might want to keep your options open so that you can change your mind when other things change.
I don’t believe that to have long term health insurance that I would recommend it, nor would I do it to pay for help to come in. Home health care is expensive, if there are other options available to you that is what I would look at first. It is important that you receive help as caretaking is a heavy load to carry for only one person. You also have to ensure that you are cared for as you age also, a reverse mortgage may be eaten totally up by your partners’ care so then you have nothing to help you.
If a senior requires help to remain at home and is willing to lose the RM fees as the cost of remaining at home, I can see where the RM can be a better than selling the home so the senior/couple can afford AL fees. For the elderly couple I helped with an RM, TN Medicaid gave them a wavier so RM money used on in-home care or medical expenses didn't count as income toward state program quantifications.
Although I agree downsizing to reduce expenses and the effort required to maintain the home while increasing savings is usually a better financial plan, many seniors wait too long and may not be physically or emotionally able to downsize into another house. When you have a stage 4 cancer diagnosis and 6-24 months to live, downsizing into another house may be just too much to complicate. Others may be looking at an RM from that downsized home. If there will be a period for a number of years where in-home care is less expensive than AL/MC, then the RM can make financial sense too.
In short, I believe "buyer beware" with any loan, traditional or reverse, a senior may consider. Because a significant percentage of the home's value will be consumed by RM fees, an RM needs to be considered as the last option. Whether selling or RM, there needs to be a plan projecting how long the money will last for in-home care or AL and a plan for moving to Medicaid LTC when/if needed.
Further it is counted as income so this can affect MEDICAID, and can make you ineligible or simply kick you off of it if you are on it.
Banks and government are crooked and I would only consider it if I were actively dying like in cancer -- and once the owner dies the bank owns the house leaving your heirs nothing.
I also would ***NOT*** entirely trust any articles AgingCare experts put out on the "benefits" of reverse mortgage--you do NOT know if the article has BIAS or not. Paid advertisers get all the benefits including biased articles. So get a good estate attorney and talk it over and yes you ****WILL**** need an estate attorney. Once you sign...you just signed your own enforceable warrant.
Does your partner have a social worker who can help direct you guys to available resources in your area? If not contact the local counsel on aging and they can help you with contact information for resources.
RM worked for this couple who could not qualify for a home equality loan large enough to meet their needs because of their income but had a nice paid for house from their working years. Their children, all still working in their 50s, supported the parents using the house to provide for their care.
You lose some of the house's value due to the RM fees, but if it's the only way to cash in on the equity, then it might still be the right thing to do.
https://www.agingcare.com/search?term=reverse+mortgages
Check out some of the other threads and answers; this will help expand your knowledge about these financial products and give you different insights.
The only reason I would ever use one is if I knew I had a terminal condition, my family didn't need the money, and I planned to live life as richly as I could. Then I would travel, exploit the funds available, and leave the house and the unpaid mortgage to any of the sleazebag companies I chose. In others words, exploit them as they have exploited others. Payback.
On a serious note, I'd find out a lot more about this so-called line of credit account and the interest it allegedly receives. Actually, the entire mortgage could be considered a line of credit, but it's unlike a HELOC. And I'd like to know more about how it receives interest.
Typically revere mortgages are reversely amortized; they increase in obligations after any withdrawal, and monthly. Interest grows like weeds in a garden. But that interest isn't available to you. I think someone's handling your partner a "line" and misrepresenting the true nature of the role of interest in maximizing the return to the reverse mortgage issuer.
Your partner should also consider whether compromising an asset such as a house could jeopardize qualification for Medicaid if it's needed.
It has probably worked out for some but we don’t seem to hear from them. It seems to usually be done out of desperation without researching alternatives.
I admit I’m biased against it as a SIL lost her home after her husband died suddenly at 68. She was too young to sign the paperwork at the time RM was entered into. She signed a release of some sort acknowledging she knew about it but at that time, that was not enough to allow her to stay in the home past his death. They could have refinanced once she was 65 but the costs to do so were very expensive and so they didn’t. No one in the family knew they had entered into such an agreement. So she lost her husband and then her home.
Even as a partner and not a spouse, if you live there, you might be asked to sign off on it. Beware.
I believe the original post referred to LTC expenses not LTC insurance.
The line of credit that I am familiar with refers to allowing the borrower flexibility in taking out money. Borrowing money to invest safely makes no sense. A senior in need of LTC borrowing to invest with risk is worse.
PS: just looked at ur profile. If your the same age of your partner I don't think I would invest in LTC insurance.
Plus you have to read the fine print - some longterm care insurance has very stringent conditions to meet before it takes effect. I had a friend whose dad had Alzheimer's severe enough for him to require memory care, but because he could still manage to eat without assistance - not prepare food, just eat it - his expensive longterm care insurance didn't cover his expensive long-term care.
There are very few situations where they make good financial sense. I do not know your situation, so I cannot comment on it.
One issue is that the reverse mortgage becomes due when you move out of your home. So to use the funds to pay for long term care, if you are thinking of residential care may put you on the wrong side of the rules.
The home owner is still 100% responsible for insurance, property taxes and maintenance.
The interest on the line of credit account will not be the same as the interest rate the reverse mortgage is compounding.
I would look long and hard at all other options before signing up for a RM.
A spouse may be permitted to stay in the home, depending on how the contract is written.