Reverse mortgage could be an option to pay for long-term care
Tapping home equity could make sense for some, but is a complicated decision that should be examined from all angles according to a new column.
Reverse mortgage loans available to homeowners aged 62 or older could be a viable consideration for those seeking to find a way to pay for long-term care (LTC). However, such a decision is a big and potentially complicated one, which should be discussed with trusted advisors or financial planners before a potential borrower decides to move forward.
This is according to a new column published by the Associated Press (AP), and widely distributed to a number of local and national news outlets across the United States. The column, written by Kate Ashford of personal finance website Nerd Wallet, aims to offer information that could assist a potential borrower in deciding whether or not a reverse mortgage is appropriate for their situation.
“If you have at least 50% to 55% equity in your home, you have a good chance of qualifying for a loan or line of credit for a portion of that equity,” the column reads. “How much you can access depends on your age and the home’s appraised value. You must keep paying taxes and insurance on the home, and the loan is repaid when the borrower dies or moves out. If there are two borrowers, the line of credit remains until the second borrower dies or moves out.”
While a reverse mortgage can assist in providing a cash stream to pay for LTC, there are shortcomings that should be considered, according to the column.
“For instance, a reverse mortgage requires that you live in the home,” the column reads. “If you’re the sole borrower of a reverse mortgage and you have to move to a care facility for a year or longer, you’ll be in violation of the loan requirements and must repay the loan. Because of the costs, reverse mortgages are also best suited for a situation where you plan to stay in your home long-term.”
Potential reverse mortgage advantages include the idea that a borrower is tapping an “up” asset — meaning that the home is appreciating in value — and that the loan proceeds themselves are not taxed, although borrowers must keep paying their associated property taxes and homeowner’s insurance to keep the loan in good standing, the column says.
Disadvantages of a reverse mortgage includes a high upfront expense, interest accrues on any used proceeds, and that heirs will potentially have less after the borrower dies or leaves the home, the column says.
“The question of whether to use your home equity as a stream of income can be complicated and depends on your other assets and plans for the future,” the column reads. “A financial planner can help you run the numbers and point you toward a vetted reverse mortgage specialist if the product makes sense for you.”
The LTC needs of seniors can vary greatly depending on a number of individual factors, according to research from the Boston College Center for Retirement Research (CRR) and reported on late last year by CNBC.