The proceeds from a reverse mortgage can be used for health care expenses but the high costs and fees can outweigh the benefits.
Q: Would you recommend that my 86 year old grandmother consider a reverse mortgage to pay for health care expenses?
A: While you ask a simple question, there are many factors to consider before applying for a reverse mortgage. A reverse mortgage is a loan product which is available to homeowners age 62 or older, who own their home mortgage-free or are nearly mortgage-free.
Reverse mortgages allow you to tap into the equity of the property, and that loan doesn’t have to be paid off until you sell the home or move from it permanently.
The problem is that reverse mortgage fees and costs can be quite high and if you need a small amount of money for health care expenses, you’ll find that the cost of the reverse mortgage may exceed the health care costs involved.
Keeping that in mind, you have to determine what health care costs you have now and in the future. If you are dealing with assisted care or long term care issues, you may find that a reverse mortgage is worthwhile.
If your grandmother is no longer living in the home, you may want to consider selling the home and using the proceeds from the sale to assist your grandmother in all of her living and health care costs.
Reverse mortgage lenders can distribute funds in a lump sum or they can be paid to the senior citizen over time. Those payments over time can be similar to an annuity that pays a monthly amount until the senior citizen dies, sells his or her home or the home is no longer his or her primary residence.
In addition to the age requirement, the senior citizen must have sufficient equity in the home to qualify. In other words, the senior citizen must have no loan on the home or a loan that is well below half of the current value of the home.
If your grandmother has a mortgage on the home now and it has a high balance, she probably is not a candidate for a reverse mortgage. You should also know that reverse mortgage lenders have different parameters for granting loans. Some of these parameters relate to the value of the home and the age of the borrower.
If you seriously want to consider a reverse mortgage, talk to a reverse mortgage lender about your options. And without applying for a loan try to determine what the costs will be to obtain the reverse mortgage, how much money you might obtain from the reverse mortgage and then you’ll have a better idea as to whether a reverse mortgage is right for your grandmother.
If you find that the reverse mortgage option is not right for her, then you can decide whether selling the home at this point would work or whether it would be too disruptive to your grandmother.
Not only do you need to consider her medical issues and financial issues, but you need to be aware of her personal issues and difficulties with any health and financial issues she may have.