879 what happens to my reverse mortgage if i go into a nursing home

What Happens to My Reverse Mortgage if I Go Into a Nursing Home

Kevin O’Leary March 15, 2024 0

Reverse mortgages have become an increasingly popular financial tool for seniors looking to access the equity in their homes. These loans allow homeowners aged 62 and older to convert a portion of their home equity into cash, providing a source of funds for various expenses, including long-term care. However, many seniors and their families have questions about what happens to a reverse mortgage when the borrower moves into a nursing home.

Understanding Reverse Mortgages

What is a Reverse Mortgage?

A reverse mortgage is a type of loan that allows homeowners to borrow against the equity in their home. Unlike a traditional mortgage, where the borrower makes monthly payments to the lender, a reverse mortgage provides the borrower with funds in the form of a lump sum, monthly payments, or a line of credit. The loan does not need to be repaid until the borrower dies, sells the home, or permanently moves out of the property.

To be eligible for a reverse mortgage, the borrower must be at least 62 years old and own their home outright or have a substantial amount of equity. The amount of money available through a reverse mortgage depends on several factors, including the borrower’s age, the value of the home, and current interest rates.

Types of Reverse Mortgages

There are three main types of reverse mortgages:

  • Home Equity Conversion Mortgages (HECMs): These are the most common type of reverse mortgage, accounting for about 95% of all reverse mortgages. HECMs are regulated and insured by the U.S. Department of Housing and Urban Development (HUD).
  • Single-purpose reverse mortgages: Offered by some state and local government agencies and select non-profit organizations, these loans can only be used for a specific purpose, such as home repairs or property taxes.
  • Proprietary reverse mortgages: These are private loans backed by the companies that develop them. They may offer higher loan amounts for homes with higher values.

Reverse Mortgages and Long-Term Care

Using a Reverse Mortgage for Long-Term Care Expenses

One of the primary reasons seniors consider a reverse mortgage is to help cover the costs of long-term care. Long-term care can include a wide range of services, such as home care services, assisted living, memory care, and nursing home care. These expenses can quickly deplete savings and retirement accounts, making a reverse mortgage an attractive option for some seniors.

Funds from a reverse mortgage can be used to pay for various long-term care expenses, including:

  • In-home care services
  • Adult day care services
  • Respite care for primary caregivers
  • Home safety modifications (e.g., installing a wheelchair ramp or walk-in shower)
  • Out-of-pocket medical expenses (e.g., hearing aids, prescription medications)

Impact on Medicaid Eligibility

It is important to note that taking out a reverse mortgage can impact a senior’s eligibility for Medicaid, the government program that provides health coverage for low-income individuals. Medicaid has specific rules regarding the treatment of home equity and reverse mortgage payments when determining eligibility.

In some cases, Medicaid may consider reverse mortgage payments as income, which could disqualify the borrower from receiving benefits. Additionally, if the borrower passes away and the home is sold, Medicaid may seek to recover funds from the sale of the home to cover the cost of long-term care services provided.

What Happens to a Reverse Mortgage When Moving to a Nursing Home

Occupancy Requirements and Loan Repayment

One of the primary requirements of a reverse mortgage is that the borrower must live in the home as their primary residence. If the borrower moves out of the home for more than 12 months, even if it is due to a stay in a nursing home or assisted living facility, the reverse mortgage becomes due and payable.

Once the loan becomes due, the borrower or their heirs have several options:

  • Repay the loan balance in full
  • Sell the home to pay off the reverse mortgage
  • Deed the property to the lender to satisfy the debt

Options for Heirs and Estate

If the borrower passes away while living in a nursing home, the responsibility for the reverse mortgage falls to their heirs or estate. The heirs have the option to:

  • Repay the loan balance and keep the home
  • Sell the home to pay off the reverse mortgage and keep any remaining equity
  • Walk away from the property and allow the lender to sell it to recover the loan balance

It is crucial for seniors and their families to understand that a reverse mortgage is a loan that must eventually be repaid. Failure to do so can result in foreclosure and the loss of the home.

Considerations and Advice

Pros and Cons of Using a Reverse Mortgage for Long-Term Care

Using a reverse mortgage to pay for long-term care has both advantages and disadvantages. Some of the pros include:

  • Access to funds without having to make monthly loan payments
  • Ability to remain in the home while receiving care
  • Flexibility in how the funds are used

However, there are also some significant cons to consider:

  • Reduces the equity in the home, leaving fewer assets for heirs
  • May impact Medicaid eligibility
  • Requires the home to be well-maintained and taxes and insurance to be paid
  • Loan balance grows over time as interest accrues

Consulting with a Financial Professional

Before deciding to use a reverse mortgage for long-term care expenses, it is essential to consult with a financial professional who can provide guidance tailored to your specific situation. They can help you weigh the pros and cons, understand the long-term implications, and explore alternative options for funding long-term care.

Additionally, HUD requires all HECM borrowers to attend a counseling session with a HUD-approved counselor before obtaining a reverse mortgage. This session helps ensure that borrowers fully understand the terms and obligations of the loan.

In conclusion, a reverse mortgage can be a valuable tool for seniors needing to fund long-term care expenses. However, it is crucial to carefully consider the implications of using this type of loan, particularly when it comes to moving into a nursing home or assisted living facility. By understanding the requirements, risks, and alternatives, seniors and their families can make an informed decision that best suits their needs and financial goals.


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