Benefits and Downsides of Reverse Mortgages

Benefits and Downsides of Reverse Mortgages

WHAT IS A REVERSE MORTGAGE?

A Reverse Mortgage – also called a Home Equity Conversion Mortgage (HECM) — is a type of loan for homeowners over the age of 62 that turns the equity saved up in a home into cash.

When someone secures a Reverse Mortgage, they are able to use the money from their home equity while also living in and retaining ownership of the home.

CAN A REVERSE MORTGAGE BE USED TO AGE IN PLACE?

The proceeds from a reverse mortgage can be used for any purpose and many seniors secure a reverse mortgage to help them stay in their own home as they age. In fact, a requirement of a reverse mortgage is that the homeowner(s) occupy the home.

Common uses of reverse mortgage benefits include:

  • Paying for skilled nursing or other in home care.
  • Funding out of pocket medical expenses.
  • Improving or modifying the home to make it more suitable for a senior.

WHO QUALIFIES FOR A REVERSE MORTGAGE?

Eligibility for a reverse mortgage is determined by three primary factors. The borrower(s) must:

  • Be 62 years or older.
  • Have enough equity to eliminate any existing mortgages.
  • Have a home type approved by the FHA – usually a single family home.

WHAT ARE THE FINANCIAL BENEFITS OF A REVERSE MORTGAGE?

Most seniors secure a reverse mortgage to improve their financial situation. A reverse mortgage can both reduce expenses and increase available cash.

  • Eliminate Mortgage Payments: If the homeowner(s) is eligible for a Reverse Mortgage, then the loan pays off the balance on the existing mortgage – eliminating all monthly mortgage payments. This alone can dramatically reduce monthly expenses and allow the cashflow to be used for in home care or other purposes.
  • Access Cash Benefit: If there is enough equity in the home, homeowners can also receive a cash benefit which can further supplement income.

HOW MUCH MONEY IS ACCESSIBLE WITH A REVERSE MORTGAGE?

The amount of money a senior can secure with a reverse mortgage is determined using a calculation that takes into account the homeowner’s age, current interest rates, the appraised value of the property, any outstanding mortgages or other liens on the property and the maximum loan limits as determined by HUD and the FHA.
Estimate your loan amount with the Reverse Mortgage Calculator from NewRetirement.

IS THERE A DOWNSIDE TO A REVERSE MORTGAGE?

The fees for Reverse Mortgages are marginally higher than those incurred with a traditional mortgage.

WHAT IS THE BEST WAY TO FIND A REPUTABLE MORTGAGE LENDER?

A Place for Mom has partnered with NewRetirement, a trusted source for finding prescreened Reverse Mortgage lenders.

NewRetirement pre-screens lenders and only refers borrowers to brokers who are licensed by the Department of Housing and Urban Development (HUD), adhere to the National Reverse Mortgage Lender Association (NRMLA) guidelines, have a clean record with the Better Business Bureau and are verified as reputable by at least two references.
Estimate your loan amount with the Reverse Mortgage Calculator from NewRetirement.

RESIDENTIAL CARE HOME SERVICES

Also called board and care homes, adult family homes, and residential care facilities for the elderly, this is a live-in housing and care option for people who do not have skilled medical needs, such as a feeding tube or daily injections. Generally, a residential care home provides the following:

  • A room, either private or shared
  • Meals
  • Varying levels of assistance with daily living activities, such as toileting, bathing, and even money and health care management
  • Custodial care, such as laundry, housekeeping, and transportation to doctor appointments
  • Reminders to take medications or actual medication administering.

Adult family homes “are wonderful for individuals who are looking for a smaller-home-like setting,” says Charlotte. “They’ll eat home-cooked meals in the kitchen. [The home] will have a front porch or back porch and a garden. [It] will offer lots of one-on-one tender loving care.”

SMALL, TIGHT-KNIT COMMUNITY

This family-like atmosphere is fostered by a high staff-to-patient ratio, which is typically higher than the same ratio in a nursing home or assisted living community. Most often there is one caregiver for every three or four residents. “If my mom is in a nursing home and she can’t walk under her own steam, it could take 30 to 45 minutes to have someone take care of her after she pushes the call button,” says Jerry G., a former Senior Living Advisor for A Place for Mom.

For a senior citizen who is very active, though, a residential care home may not offer enough stimulation. A larger assisted living community has a wider array of social activities, such as on-site aerobics or outings to near-by events. A residential care home is a better fit for a frailer adult who can benefit from more individual care, says Charlotte.

Researching potential adult family homes for loved ones is complicated by the fact that there are no federal standards for these communities. Each state follows its own regulations and licensing rules. (Some states have no set standards.) For states that license residential care homes, surveys on each home are available at local licensing offices. Homes usually must provide this survey if asked by potential clients. To find a local licensing agency, contact the state’s department of aging.

Just as every house on a block is different, residential care homes are not all styled the same. Some are modest, while others feature crystal chandeliers and granite countertops. “It depends on how potential residents have been living their lives,” says Jerry G. “They are going to be more comfortable in a home like they have been living.”

Adult family homes are run by all kinds of individuals, from registered nurses to recent immigrants. Sometimes the homeowner lives in the facility, while others are run like a business with shifts of caregivers. “They [usually] have nursing oversight, but the nurse is not onsite at all times,” says Jerry. Because residential care homes vary so greatly, it’s vital to assess the needs of the future resident, deciding if they need around-the-clock staff attention, for example. It’s also important to visit several homes, comparing and contrasting to find the best fit.

The price tag for a living in a residential care community is often half the cost of nursing home care, and in some states, it is even more affordable than assisted living community care. Although prices vary vastly, care usually costs $3,500 to $4,500 per month, although some cost as little as $1,500 each month. Some charge $5,000 to $6,000 per month; these are typically homes that specialize in dementia care.

Some long-term care insurance policies pay for residential care home costs. Medicaid-health insurance that helps pay for medical and long-term care for people with low income-often covers fees for people who can’t afford the cost of private care. “Most [residential care homes] want you to pay privately for a year or two before you convert to Medicaid,” says Jerry. Some residences don’t accept Medicaid at all. Since Medicare doesn’t pay for custodial care, it doesn’t usually cover residential care home fees.

This type of care home is a good fit for many elderly adults. Many of them can provide care until the end of a life, and helps residents feel like they are living in their own homes, says Jerry.

Update: January 2018

Find Senior Living Near You


Related Articles