When helping your clients make financial decisions for their future, it is essential to explore all options. Using home equity to increase cash flow in retirement is a popular option that allows seniors to stay in their homes without making monthly mortgage payments.
Whether your clients need to pay off existing home equity loans, eliminate credit card debt, or need to cover daily living expenses, a reverse mortgage may be a reliable retirement financing solution. Many retirees use the proceeds from a reverse to pay for in-home care. Regardless of the reason, a reverse mortgage, or Home Equity Conversion Mortgage (HECM), is a big decision for your clients, their families, and their caregivers.
Financial experts are starting to incorporate reverse mortgages into retirement plans. Two reputable organizations dedicated to seniors also promote the reverse for paying for home-based long-term care. The National Council on Aging (NCOA) released a study that shows that reverse mortgages could be used by over 13 million Americans to pay for long-term care expenses at home, allowing them to remain independent at home longer. The Centers for Medicare and Medicaid Services (CMS) and the Robert Wood Johnson Foundation also show how a reverse can alleviate financial pressure in a report they funded, “Use Your Home to Stay at Home: Expanding the use of Reverse Mortgages to Pay for Long Term Care.” However, reverse mortgages are not for everyone.
Reverse mortgage pros
The US Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) back reverse mortgages. People age 62 and older are eligible to use this federal program to get a “non-recourse loan,” meaning that your client’s heirs are not responsible for repaying the loan. Also, reverse mortgage loans do not require monthly payments. The loan does not have to be repaid until the homeowner leaves the residence permanently. Reverse mortgages can also be a lifesaver for homeowners that are having difficulty covering living expenses. Many seniors use the proceeds from reverse mortgages to pay for in-home care, and home modifications to make it easier to safely age in place. Reverse mortgages have also saved many seniors from losing their homes to foreclosure from past-due property taxes or current mortgage obligations.
Today’s reverse mortgage comes with precautions to ensure that it’s proper for everyone’s situations. Before completing an application for a reverse mortgage, applicants are required to attend a HUD counseling session. The sessions make sure that applicants understand how reverse mortgages work, and a certificate of the counseling must accompany the reverse application.
Reverse mortgage cons
Reverse mortgages can be beneficial when coving the costs of care. However, the proceeds may affect Medicaid benefits and other need-based programs. Medicaid is a joint state and federal program that assists impoverished seniors in paying for healthcare costs and long-term care. Because of this, Medicaid has income eligibility requirements to be accepted into the program. If a borrower takes a large lump sum of cash from their home equity, it may cause eligibility issues. Consult an expert to discuss your situation and the regulations in your state. An elder law attorney can help answer questions about Medicaid qualification.
The borrower must intend to stay in the home long term when considering a reverse mortgage. If the borrower requires an increased level of care and moves to a nursing home, the loan will become due. However, the loan will not be due if the borrower can manage with in-home care.
The reverse mortgage proves to help many achieve more comfortable retirements in their own homes. However, the reverse is not for everyone. Consult an expert who can review your loved one’s needs and goals to help develop a financial strategy to help pay for long-term care.
These materials are not from HUD or FHA and were not approved by HUD or a government agency.
©2020 Finance of America Reverse LLC is licensed nationwide | Equal Housing Opportunity | NMLS ID # 2285 (www.nmls.consumeraccess.org) | 8023 East 63rd Place, Suite 700 | Tulsa, OK 74133 | AZ Mortgage Banker License #0921300 | Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act | Georgia Residential Mortgage Licensee #23647 | Kansas Licensed Mortgage Company | Massachusetts Lender/Broker License MC2285: Finance of America Reverse LLC | Licensed by the N.J. Department of Banking and Insurance | Licensed Mortgage Banker — NYS Banking Department where Finance of America Reverse is known as FAReverse LLC in lieu of true name Finance of America Reverse LLC | Rhode Island Licensed Lender | Not all products and options are available in all states | Terms subject to change without notice | For licensing information go to: www.nmlsconsumeraccess.org When the loan is due and payable, some or all of the equity in the property that is the subject of the reverse mortgage no longer belongs to borrowers, who may need to sell the home or otherwise repay the loan with interest from other proceeds. The lender may charge an origination fee, mortgage insurance premium, closing costs and servicing fees (added to the balance of the loan). The balance of the loan grows over time and the lender charges interest on the balance. Borrowers are responsible for paying property taxes, homeowner’s insurance, maintenance, and related taxes (which may be substantial). We do not establish an escrow account for disbursements of these payments. A set-aside account can be set up to pay taxes and insurance and may be required in some cases. Borrowers must occupy home as their primary residence and pay for ongoing maintenance; otherwise the loan becomes due and payable. The loan also becomes due and payable (and the property may be subject to a tax lien, other encumbrance, or foreclosure) when the last borrower, or eligible non-borrowing surviving spouse, dies, sells the home, permanently moves out, defaults on taxes, insurance payments, or maintenance, or does not otherwise comply with the loan terms. Interest is not tax-deductible until the loan is partially or fully repaid.