Reverse Mortgage Pros
Reverse mortgages are backed by (and regulated by) the federal government (HUD and FHA). Seniors age 62 and older are eligible to use this federal program. This is a "non-recourse loan," which means that the heirs of the seniors are not responsible for repaying the loan. In fact, a reverse mortgage is a loan that does not have to be repaid unless both homeowners (assuming a couple) leave the home permanently, or pass away. No monthly payments are required. The senior is the one who gets paid.
The money the elderly receive from a reverse mortgage is tax free, and does not interfere with SSI or Medicare benefits. For elderly parents having trouble making ends meet, this can be a lifesaver.
Some elderly people are using the extra cash flow to pay for in-home care, adult day care, prescription drugs, credit card debt, and make much-needed home repairs so that they can live safely and more comfortably.
Many seniors' homes have been saved from foreclosure by using their home equity to pay past-due property taxes, or to pay off current mortgages that have become unaffordable.
Prior to completing an application for a reverse mortgage, seniors are required to attend a HUD counseling session. This is designed to make sure the senior understands how the reverse mortgage works, and to answer any questions. They speak with a trained counselor either over the phone or in person. A certificate is sent to the senior after the counseling session is completed. This certificate must accompany the reverse mortgage application.
Reverse Mortgage Cons
If you are a caregiver for an elderly parent who currently needs in-home care, the proceeds from a reverse mortgage can be extremely helpful when it comes to hiring help. However, also consider that although reverse mortgage proceeds do not affect Medicare or Social Security, the proceeds can affect Medicaid.
Medicaid is a program that assists impoverished seniors pay for long-term care. Anyone who applies for Medicaid must meet certain complicated asset and income thresholds before Medicaid will pay for their care. If a senior takes a large lump sum of cash from the equity in their home via a reverse mortgage, they can knock themselves out of eligibility for Medicaid services.
It is extremely important to talk to an expert who understands the complicated senior laws that exist in each state, in order to avoid problems down the road. Many elder law attorneys (www.naela.org) can be very helpful when considering how reverse mortgage proceeds might affect Medicaid qualification down the road.
On another note, when considering a reverse mortgage, it is important that the senior plans on staying in their home for a few years. For those who are considering moving in the next year, it would be more appropriate to wait until the senior is living in the new home to move forward with the application process. Closing costs are most always factored into the loan leaving very little in the way of any out-of–pocket costs for seniors, but those closing costs are still an issue, which makes it important for the senior to try and stay in the home for as long as possible.