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Paying For Long-Term Care

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  Selected Section Home Equity Conversions (Reverse Mortgages) | Reverse Annuity Mortgages 
 | Selling Your Home and Moving | Continuing Care Retirement Communities (CCRC) 

A home equity conversion (reverse mortgage) is a special type of loan used to convert (change) the equity (value) in your home into money. The money from a reverse mortgage can help you pay for your health care needs, pay off debts, make home repairs, and supplement your monthly income. It may also help pay for long-term care services through a long-term care insurance policy, annuity, out-of-pocket, or single premium life/long-term care policy.

The amount of money you can get depends on your age at the time you apply for the loan, the equity (value) of your home, type of loan, and current interest rates.

How you get your payments is your choice. You can get your payments all at once (lump sum), fixed monthly payments, a line of credit, or combination of any of the ways just described. However, most people like to get their payments as a line of credit. This allows you to use your money at any time.

Sometimes, you will have to pay some costs to get a reverse mortgage. These costs can include an origination fee (a fee to prepare your loan paperwork and process your loan), appraisal fee, and other fees, like title work. Usually, these costs can be added into your loan.

The money you get from a reverse mortgage is tax-free. It doesn’t affect your Social Security or Medicare benefits. However, the money you get from a reverse mortgage counts toward your income when determining your eligibility for Medicaid or other state assistance programs. You may want to check this out before getting a reverse mortgage.

Reverse mortgages are different from first and second mortgages. Instead of you making monthly payments to a lender, the lender makes payments to you. You don’t have to make payments on the loan until you no longer live in your home permanently. However, you can make payments whenever you want. You will have to pay the loan back plus interest and other costs when you either sell your home, move out permanently, or when you die.

With reverse mortgages, you can’t lose your home because you “missed your mortgage payment.” This is because you don’t make any monthly payments. Remember, because you own your home, you must still pay for your property taxes, homeowners insurance, home repairs, and utilities (such as phone and electric). If you don’t pay for these, then you may have to repay the loan in full immediately.

When you sell your home, no longer live in your home permanently, or when you die, you or your estate will have to repay the money that you got from the reverse mortgage. You will also have to repay any interest and other fees. If you have any money (equity) left over, then that belongs to you or to your heirs (family or friends). Remember, reverse mortgages don’t affect any of your other assets (such as your personal checking or savings accounts).

The Home Equity Conversion Mortgage Program (HECM) is a program in which federally insured reverse mortgages are backed by the Federal Housing Administration (FHA, an agency of HUD) and insured by the federal government through the HECM Program. Since there is a chance of fraud, this program requires that you receive free reverse mortgage housing counseling from a HUD-approved reverse mortgage counseling agency before applying for a reverse mortgage. In addition, FHA insures HECM loans to protect lenders against loss if amounts withdrawn exceed equity when the property is sold.

Reverse mortgages that aren’t backed by the federal government may be more expensive but often have the flexibility of providing larger loan amounts.

To be eligible for a HECM, you must be at least 62 years old, have low or no mortgage balance, and have received HUD-approved reverse mortgage counseling to learn about the program.

To get more information about the HECM program, look at HUD's website.

Listed below are some of the opportunities and requirements/limits about home equity conversions:

Reverse Mortgages Opportunities:
Reverse Mortgages Requirements/Limits:
How you get your reverse mortgage payments is your choice.
*The cost of your long-term care expenses might be more than the amount you borrowed. You may have to sell your home to repay back the reverse mortgage loan.
There are no income or medical requirements to qualify.
*You may outlive the length of a reverse mortgage. If this happens, you may have to sell your home to repay back the reverse mortgage loan.
You can use your money from the reverse mortgage to buy a long-term care insurance policy, annuity, out-of-pocket, or single premium life/long-term care policy.
If you sell your home or no longer live in your home permanently, and if you used all of your money (equity) to pay off the reverse mortgage loan, then you might not have anything left for your heirs (family or friends).
It can increase your monthly income.
The money you get from a reverse mortgage counts towards your income. This may affect your eligibility for Medicaid or other state assistance programs.
The money you get from a reverse mortgage is tax-free. For more information, you should check this out with the Internal Revenue Service (IRS).
Because you own your home, you must still pay for your property taxes, homeowners insurance, home repairs, and utilities (such as phone and electric). If you don’t pay for these, then you might have to repay the loan in full immediately.
When you sell your home, no longer live in your home permanently, or when you die, you or your estate will have to repay the money back that you got from the reverse mortgage. If you have any money (equity) left over, then that belongs to you or to your heirs (family or friends).
Loan amounts don’t adjust for inflation (future price increases).
Reverse mortgages doesn’t affect any of your other assets (such as your personal checking or savings accounts).
If the cost of long-term care exceeds the loan amounts, then you may need to apply for Medicaid eligibility and spend down your assets to cover the costs of long-term care.

* In the HECM program, a borrower can’t be forced to sell the home to pay off the mortgage, even if the mortgage balance is more than the value of the property. A HECM loan doesn’t need to be repaid until the borrower moves, sells, or dies. When the loan must be paid, if it exceeds the value of the property, the borrower (or the heirs) will owe no more than the value of the property. Federal Housing Administration (FHA) insurance will cover any balance due to the lender.

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