Many adult children look to the equity in a home to finance long-term care for seniors. Despite what celebrities say in advertisements, reverse mortgages are not an unending pot of gold; they have significant drawbacks.
The ads say seniors can reap financial benefits from their homes while they still own them. Let’s look at that, shall we? Can you:
Sell the house? NO
Will it to friends or relatives? NO
Take out a home equity loan for repairs? NO
Take financial advantage when upswings
in the real estate market increase the value
of your home? NOT unless you refinance the mortgage, paying back any funds you’ve withdrawn plus stiff penalties.
It doesn’t look like the senior still owns the home, does it?
People must be at least 62 years-old before they can qualify for a reverse mortgage, but the total amount of money available to younger mortgagees is usually much less than funds available to older applicants. Companies base the available amount on the age of the youngest person named on the title. If an 82 year-old senior owns a home with a 62 year- old adult child, the value calculation age is 62.
At that age, many seniors still have over twenty years of life expectancy, and are likely to outlive the value of their homes. Most programs will not put someone out on the street when that happens, but the companies won’t fix the roof, or buy a new furnace. Seniors can stay in the house as long as they live, but it could fall down around them.
If the senior dies, or moves permanently (to a long-term care facility, or other location,) THE HOUSE BELONGS TO THE MORTGAGE COMPANY. Anyone else who lives in the house will have to buy it at fair market value, OR MOVE. With so many adult children moving back home, this could present a major challenge.
The law requires that a counselor advise seniors who applies for a reverse mortgage, but in my experience, these counselors are expert in reverse mortgages only. They don’t know eldercare. Are there programs through the city, state, VA, other federal agencies, or private sources that might decrease the senior’s financial stress?
Depending on the age, life expectancy, and specific situation of the senior, a reverse mortgage can be a blessing, to seniors and caregivers who want to give their loved ones the best possible quality of life, but most people do not understand the downside. Do your homework and be sure to include an eldercare adviser in your planning. Contact your local department on aging, area agency on aging, or the National Association of Professional Geriatric Care Managers. www.caremanager.org. The National Council on Aging’s Economic Check-up is another resource to help you locate financial assistance older adults.Visit www.EconomicCheckup.org.