Reverse mortgages have become more common today than ever before. Part of that reason can be explained by the recession and the hits so many retirement accounts took. Many older Americans opted for this type of mortgage, believing it was the solution they needed. Unfortunately, in those earlier days, many really had no idea what a reverse mortgage meant in the long run. This week, we take a look at reverse mortgages and what they mean if you or a loved one is now looking at the necessity of a nursing home.
The one biggest recent change with reverse mortgages is that they’re now insured by the Federal Housing Administration as part of its Home Equity Conversion Mortgage (HECM) program.
Here’s how they work –
A reverse mortgage loan does offer benefits, but they must be paid off completely when the last surviving borrower permanently moves out of the home. Keep in mind – this is the last surviving BORROWER – not occupant. If you’re moved to a nursing home and you’re there for more than 12 consecutive months, it’s considered permanent as far as your lender is concerned. 11 months and 29 days – you’re good. If you’re the only borrower and you have someone else in the home too and you spend more than a year away, not only is it considered a permanent move, but anyone else in the home must vacate the house.
Any situation in which you’ve lived someplace else – including a nursing home or assisted living – for more than 12 months counts as a “permanent move.” A stay in a nursing home or assisted living for less than 12 months does not affect your reverse mortgage or your home – you can keep your home during your stay, and come back to it afterwards.
The Consumer Financial Protection Bureau offers these scenarios as well as an explanation as to what you can expect.
Again, assuming you’re the only BORROWER.
If you live alone, and if you’re placed in a nursing home or assisted living facility for more than twelve months, you basically give up your rights to your home. The lender can and likely will sell the home to resolve the outstanding balance.
If you live with a spouse or anyone else and you spend twelve months in a nursing home or assisted living facility, anyone in the home may be required to move so that the house can be sold to resolve the debt. The same is true, even if there are minor children in the home.
If you are the BORROWER with someone else (a co-borrower) on the reverse mortgage:
You live alone because your co-borrower has passed away or already lives elsewhere, your loan must be paid off if you move to a nursing home or assisted living for more than 12 months.
You live with a spouse or partner who is a co-borrower on the reverse mortgage, your co-borrower can continue to live in the home if you move to a nursing home or assisted living. The same holds true if the co borrower also requires assisted living or a nursing home for more than 12 months, your loan must be paid off.
In other words, if there is ever a block of time of twelve months that the borrower or any co-borrower is not in the home, the lender can and will sell the house.
Again, for some, a reverse mortgage is ideal. It’s important to understand the risks though and how those risks might affect your assets, your will and what your heirs receive. It’s always a good idea to speak with your estate planning lawyer ahead of time so that there are no surprises and so that you’re better informed.