It’s common for older people to worry about funding long-term care. The concern is even more significant if you feel your savings may not be enough. A reverse mortgage could be an answer for some seniors, but these loans have significant financial implications. This post will explore what you need to know about taking a reverse mortgage for long-term care costs.
Should You Take a Reverse Mortgage for Long-Term Care?
A reverse mortgage loan allows homeowners over 62 to tap into home equity. Unlike a traditional mortgage, where the owner pays the bank, reverse mortgages don’t have monthly payments. Instead, the borrower doesn’t pay the loan until they either pass away or move from the home.
The property must be the borrower’s primary residence to qualify. You also have obligations to maintain the home, pay insurance, and cover property taxes. Reverse mortgages can come in lump sums, monthly payments, or as a line of credit.
Additionally, borrowers must own the home outright or have a low mortgage balance.
The Pros of Using a Reverse Mortgage to Fund Long-Term Care
A reverse mortgage offers several benefits to seniors who need help funding long-term care. It provides access to funds without requiring monthly loan payments or losing ownership. Borrowers can use the funds for anything, including in-home care, adult day care, assisted living for a spouse, or temporary stays at care facilities.
Reverse mortgages can be particularly advantageous for aging in place. You can use it to cover care costs while staying in your home. It can also help you preserve other assets like savings accounts and investments. These loans are tax-free, and the balance can never exceed the property’s value.
The Cons of Using a Reverse Mortgage to Fund Long-Term Care
Reverse mortgages come with drawbacks. The most significant is that the loan can deplete your home equity. As the balance increases, you diminish your home’s value as an asset. With interest growing, little value might remain when you move or pass away. These loans often have high closing costs like origination fees, title searches, insurance, and reverse mortgage counseling.
The residency requirement may affect the loan’s suitability for long-term care costs. One property owner must use the property as their primary residence. It can be suitable for in-home care or if one spouse must move to a nursing home or assisted living, but a reverse mortgage might limit your care options if you’re the sole owner. You also run the risk of running out of funds If you take the loan too early.
Reverse Mortgages and Medicaid
How does a reverse mortgage impact Medicaid eligibility? The income will not affect your income limits for Medicaid. However, any unspent funds may impact your asset limits, so a lump sum may not be a good option for those concerned about Medicaid eligibility.
There can still be issues with monthly payments. Since Medicaid’s asset limits are so low, unspent funds could accumulate to put you over the asset limit, forcing the borrower to spend funds unnecessarily to maintain eligibility. These concerns may make a reverse mortgage less than ideal.
Reverse mortgages and long-term care planning are complex matters. Since each person’s situation is unique, you should contact financial planners and elder law experts to assist with planning.
Do you need help with long-term care planning? Click here to contact the Scott Law Offices. Our elder law experts are ready to help you understand your options and develop a plan that works for you. Reach out now to learn more.
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