Reverse Mortgage Loans: Have Money for Health Care Costs and Stay in Your Home
June 28th, 2017
June 28th, 2017
If you’re 62 years or older, do you worry about how you’re going to pay for health care costs as you require more care with age? A reverse mortgage may be the answer to your concerns.
Recently, Terry Savage, a nationally syndicated financial columnist, wrote an article about how a reverse mortgage loan helped his father. When his dad was around 80, Savage helped him get a reverse mortgage loan. Although his father had concerns about the reverse mortgage loan, Savage told his dad “to not worry, live longer – and beat the odds!” Savage’s father did just that living to age 95.
At the time of his death, Savage’s dad was still living in his home. Daily in-home care givers provided assistance for his personal and health care needs, paid for with the help of long-term care insurance. Through the years, Savage continued to help his dad with insurance, property tax and other special assessment payments as needed.
Over the years, Savage’s dad worried about how the balance on the reverse mortgage loan, and the interest charged on the withdrawn money, was building up. But Savage regularly reassured him and told him not to worry about it. The reverse mortgage lender couldn’t force him to move out.
By the time of his dad’s death, the balance on the reverse mortgage loan was higher than the market value of condo. And the condo was turned over to the reverse mortgage lender. From the start, Savage’s family didn’t worry about losing the property in the end if their dad outlived his equity. They just wanted their dad to be able to live in his own home with dignity for as long as possible.
Savage’s story is an example for other seniors and their family members about how reverse mortgage loans can allow them to stay in their homes, too, if it makes sense for their situations.
What Is a Reverse Mortgage?
A reverse mortgage loan is an equity loan that’s secured by your home. You can take out a loan for all or a portion of the equity of your home. In return, you receive the equity as cash in one payment or monthly payments.
A reverse mortgage loan basically reverses the traditional mortgage payment process. Instead of you making payments to a lender, you’re the one receiving the payments.
What Are the Basic Requirements for a Reverse Mortgage Loan?
To qualify for a reverse mortgage loan, you must be 62 years or older and use your home as your primary residence. A reverse mortgage loan works best if you don’t have a current mortgage on your home. Or, you only have a small remaining balance on your existing mortgage, which you pay off with the money you receive from the reverse mortgage loan.
You are required to stay current on your property taxes, homeowners’ insurance, and homeowners’ association dues, if applicable. Additionally, you are responsible for maintaining your property and making any mandatory repairs. Therefore, if you’re planning to take out a reverse mortgage loan, you need to make sure you have enough income to stay in your home.
How Much Money Can I Receive?
The amount of the reverse mortgage loan is determined by:
- Your age (or the joint ages of spouses who co-own the home).
- The current market value of your home (less any current mortgage balance, if there is one).
- The current interest rates.
Are There Restrictions on How I Use the Money?
No. You can use the money however you want. It can help you pay for basic monthly living expenses, health care costs, health care or long-term care insurance costs, or other expenses.
Do I Have to Pay Taxes on the Money I Receive?
No. With a reverse mortgage loan, you’re receiving the equity you paid into your home when you made monthly mortgage payments on a previous home loan. Therefore, the money you withdraw is tax-free.
What Do I Have to Pay to Take Out a Reverse Mortgage Loan?
Like any loan, you will have to pay origination, appraisal, and closing fees. If you’re taking out a Home Equity Conversion Mortgage (HECM) loan, which is FHA’s reverse mortgage loan program, you may also need to pay a mortgage insurance premium fee, which provides you and the lender with certain protections.
Plus, you may have to pay servicing fees to the lender for administering the monthly payments you receive. However, many lenders have either eliminated setting aside serving fees or have included them in the interest rate.
Additionally, you will be charged compounded interest on the amount of money that you receive. Therefore, it only makes sense to take out a reverse mortgage loan if you plan on living in your home for at least five more years.
How Long Can I Stay in My Home?
You can never be kicked out of your home. And if you live longer than projected or past the amount of equity received, the reverse mortgage loan lender will continue to pay you every month if you selected the monthly payment option.
When Does a Reverse Mortgage Loan Become Due?
A reverse mortgage loan comes due if:
- You die (or the last surviving borrower dies, if the loan is in your spouse’s name, too).
- You sell your home or you’re required to move into a nursing facility.
- You transfer your home’s title to another person, like a family member.
- You stop paying your property taxes and homeowners insurance.
- You haven’t maintained your property.
At that time, you or your heirs can:
- Pay off the loan, including any interest or fees due. You or your heirs will keep the property.
- Sell the home and repay the loan. You or your heirs can keep any excess money left over. If the money received from the sale of the home doesn’t cover what’s due on the loan, you or your heirs don’t have to pay the difference.
Who Can I Call for More Information about a Reverse Mortgage Loan?
If you or your family members are interested in obtaining a reverse mortgage loan, and you live in the Indianapolis, Indiana area, contact the mortgage experts at Grandview Lending. They can answer your questions about reverse mortgage loans and help you determine if it is the right solution based on your needs. Our specialists can give you a rough idea of how much money you can receive with a reverse mortgage loan.
Stay in your home and have the money for things like health care costs with a reverse mortgage loan. Call Grandview Lending at 317-255-0062 to learn more.
Note: These materials are not from HUD or FHA and were not approved by HUD or a government agency.
Photo credit: iStock Photo / Kuzma
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