Can a Reverse Mortgage Pay for My Healthcare Costs?
As we age, our healthcare costs tend to rise. To make matters worse, new Medicare regulations in 2018 will begin to make it even more expensive for some individuals to pay for Medicare Parts B and D by adding surcharges that are dependent on the individual’s average income.
A reverse mortgage loan can be used to avoid putting taxable income reserves at risk. Because funds received via reverse mortgages are not counted as income and are tax-free, and are not incorporated into the Medicare surcharge evaluation. Let’s take a look at how to use a reverse mortgage to pay for long-term healthcare costs while allowing retirees to stay in their homes indefinitely.
A Healthcare Cost Challenge
Home care costs continue to increase as the aging population lives longer and longer. Unfortunately, the funds available to sustain that extended lifespan begin to run out. In light of these extended years, new methods of paying for the costs associated with them must be sought out. Government programs are working hard to keep up, but as average healthcare charges increase, homeowners are forced to look elsewhere for funding. This is where existing home equity can come into play.
Many retirees may not feel adequately prepared for today’s healthcare costs. The good news is that they may also be sitting on the golden nest egg they need to live out the remainder of their years comfortably in their own homes. Home equity continues to rise, and many retirees have since paid off their mortgage balances and own their property free and clear. That means their home equity is theirs in full to pull from over the coming years. They can continue to live in their home while borrowing from their equity to pay the costs of healthcare now and in the future. Remember, for years you support your home making payments month after month, now it’s time to let your house support you.
A Reverse Mortgage Solution
Although selling your home may sound like an easy solution to a money problem, a reverse mortgage can be a much more financially savvy alternative. With the steep costs of nursing homes, remaining in the comforts of a familiar space and paying for home care can be much more affordable and allow homeowners to keep hold of home equity funds longer.
In addition, sometimes loans can be hard to come by when incomes dip after retirement or prior events have chipped away at those credit scores. A reverse mortgage loan can help homeowners protect their savings while they manage their healthcare costs.
Another benefit of the reverse mortgage is the safeguards that have been put in place to carefully regulate certain aspects of the agreement. Reverse mortgages follow a specific formula that includes the following:
- The process usually takes approximately 4-8 weeks from start to finish.
- Given acceptable conditions, a reverse mortgage can be refinanced.
- Closing costs are between 2% and 8% of the total loan amount, and in many cases can be waived.
- Homeowners can borrow between 20-70% of their home’s value.
- Loans do not affect Medicare or Social Security benefits, but can affect Medicaid benefits.
- Homeowners will never owe more than their house is worth.
- Lenders cannot force homeowners out of their homes.
- Loans are due when the last borrower moves out of the home for at least 365 days, or passes away.
Reverse mortgages also have eligibility requirements that the homeowner must meet to qualify. These requirements include:
- Seniors must be at least 62 years of age.
- There are no restrictions on health status or marital status.
- Income and financial resources are assessed to ensure the homeowner is financially capable of managing their home.
- There must be no other primary debt against the home of interest.
- The subject property must be the primary residence of the senior.
- The value of the home is the primary limiting factor on the amount of the loan.
- The property must be a single-family home, a 2-4 unit home, a HUD-approved condo, or an FHA approved manufactured home.
Reverse Mortgage Proceeds
Reverse mortgages are available for qualified individuals aged 62 or older. The proceeds from reverse mortgages can be used at the borrower’s discretion. This includes home care, groceries, medical bills, prescriptions, home remodels, long-term care insurance, and so on. These proceeds can be paid as a lump sum, monthly payments, or a line of credit, and depend on the specific circumstances and needs of each borrower. Because they are not considered income, they are not taxed as such and allow the borrower to keep more of their equity. These mortgages, also known as Home Equity Conversion Mortgages (HECM), are protected by the Federal Housing Administration (FHA). This protection means that payments are assured, helping to keep reverse mortgages as a safe and secure option for the aging adult.
Making the Decision
Financial decisions should never be considered lightly, and it’s important to sit down with an advisor and go through all of the available options before making your choice. It’s also helpful to see how a reverse mortgage stacks up in comparison to other options. Fortunately, reverse mortgage rules require borrowers to participate in reverse mortgage counseling, financial assessments, and other requirements to protect both the borrower and the lender. Unlike many alternatives, the right reverse mortgage decision is well-guarded to help borrowers feel secure in their post-retirement decisions and make the right choices for their future.
A reverse mortgage loan can help protect the value of a homeowner’s equity by offering proceeds that aren’t taxable as income. This allows these homeowners to remain in their homes throughout their years, helping to take the burden and strain off of the borrower and their family members. This offers a great many individuals with existing equity in their home to borrow from their equity and not worry about repayment until that home is sold, or upon the death of the last surviving borrower.