A Reverse Mortgage – an Elder Law View – Pros and Cons

Reverse mortgage Pro’s

• A reverse mortgage provides fast access to your equity.
• The mortgage is typically not paid until you die.
• Proceeds can be used for in-home care if you do not qualify for, or cannot get adequate in-home care, keeping you out of a nursing home for as long as possible.
• If you have a great need for the cash flow from a reverse mortgage, and preserving your estate for your heirs is not the primary objective of your financial plan, this can be an effective way of supplementing your cash flow.

Reverse Mortgage Con’s

• High Closing costs.
  • Closing costs for Reverse mortgages can be as much as double what is charged for a conventional mortgage.
• Potential impact on eligibility for government benefits.
  • Reverse mortgage payments are not typically counted as income if the proceeds are spent in the month they are received. If the proceeds from the reverse mortgage, however, are not spent and accumulate in a bank account, they could push you over the allowable limits for Medicaid or SSI.  Certain states may also consider the proceeds to be income, even though it is your own equity, as you receive a monthly check.
• Spending your children’s inheritance.
  • If you are trying to preserve your estate for your heirs, the mortgage will be paid off through your estate. Your inheritors can receive the difference, however, between what you owe on the reverse mortgage and what the home actually sells for if there is an excess.
• Moving Out.
  • Under certain circumstances, if you end up moving to a nursing home, it could be construed as having “permanently moved out”, as there may be a presumption that an elderly person leaving their home for a nursing home would not be returning. If this were the case, it could force the sale of the home.