Introduction to Reverse Mortgages from an Eldercare Perspective

Elders often struggle to find the resources to stay out of nursing homes and stay in their home, but still, need In Homecare. A reverse mortgage can be used to help make that happen.

Medicaid can be used to pay for nursing home care, but stay at home care can be difficult under Medicaid.  A reverse mortgage is not a panacea and should be evaluated with the help of an elder care attorney or elder care financial advisor.

What is a reverse mortgage?

A reverse mortgage is a loan designed specifically for elders (62 years of age or older) to take money out of their home either

• in payments,
• in a lump sum,
• as a credit line, or
• as any combination of the three.

Repayment of a Reverse Mortgage

A Reverse mortgage is a LOAN, and that loan has to be repaid.

The loans do not have to be repaid until any of the following 3 events occur.

1. the last surviving borrower dies.
2. the home is sold.
3. the borrower moves out permanently.

What is the purpose of the Reverse Mortgage?

One must never forget that the first purpose of any financial instrument, is to make money for the lender. The intention or motivation for a reverse mortgage was to give seniors that were real estate rich, but cash flow disadvantaged, fast and easy access to the equity in their home for any purpose, including home-based elder care.

There are both plusses and minuses when evaluating a Reverse Mortgage.   Before starting the loan process for an FHA/HUD-approved reverse mortgage, applicants must take an approved counseling course.  An approved counselor should help explain how reverse mortgages work, the financial and tax implications of taking out a reverse mortgage, payment options, and costs associated with a reverse mortgage.  The counseling is meant to protect borrowers, although the quality of counseling has been criticized by groups such as the Consumer Financial Protection Bureau.

Regulators and academics have given mixed commentary on the reverse mortgage market. Some economists argue that reverse mortgages may benefit the elderly by smoothing out their income and consumption patterns over time.  However, regulatory authorities, such as the Consumer Financial Protection Bureau, argue that reverse mortgages are “complex products and difficult for consumers to understand”, especially in light of “misleading advertising”, low-quality counseling, and “risk of fraud and other scams”.  Moreover, the Bureau claims that many consumers do not use reverse mortgages for the positive, consumption-smoothing purposes advanced by economists.^[1]