If your spouse is facing Alzheimer’s disease or another form of dementia and requires care at a higher level, you want to consider all the financial options available for the ongoing costs. Paying for memory care with a reverse mortgage is one possibility. You’ll want to have a clear understanding of whether this option is right for you, what to expect, and how a reverse mortgage works.
At Senior Star, we’ve created a special guide to help you navigate the details of financial options for senior living.
What you need to know about paying for memory care with a reverse mortgage
A reverse mortgage is a type of home equity loan for homeowners 62 or older. The lending bank makes payments in a single lump sum, in monthly installments, or as a line of credit. The loan does not have to be paid back until the last borrower (often couples will both sign) passes away or moves from the home for one full year.
Paying for memory care with a reverse mortgage is just one possible use of the funds. Seniors can also use the equity from their homes to pay off old home equity loans or credit card debt, or to help cover daily expenses.
Who is a good fit for a reverse mortgage?
A reverse mortgage may make sense for people who don’t plan to move, who can still keep up with the cost of home maintenance, property taxes and insurance and those who want to access the equity in their home to supplement income in retirement. A married couple with one spouse in need of long-term care could benefit if the other spouse is remaining at home. Married seniors who are both in fair health and will remain in the home for some years are another good fit.
Quick facts about a reverse mortgage
- Seniors must be at least 62 years old to qualify and there are no upper age limits.
- Reverse mortgages can be refinanced.
- Between 20-70 percent of a home’s value can be borrowed.
- The home must be the senior’s primary residence. A borrower can live outside the home, such as in assisted living or memory care, for up to 12 months before the reverse mortgage becomes due.
- Reverse mortgages do not affect your Medicare or Social Security benefits but can potentially impact Medicaid eligibility.
- Homeowners can never owe more than their home’s value.
Common reverse mortgage myths: know the truth
Myth: The bank will own the senior’s home.
Truth: The homeowner’s name remains on the title and that person retains ownership.
Myth: The senior’s heirs will be responsible for repaying the loan if the senior dies.
Truth: Heirs will not be responsible. After the senior dies, their estate has 30 days (with a possible extension of up to a year) to sell the home for market value. The proceeds from that sale repay the loan. Heirs may be able to keep the home if the loan is paid using another source of funds.
Myth: Seniors must make payments on reverse mortgage loans.
Truth: No payment is ever due on a reverse mortgage until the last living homeowner permanently leaves the home. (Exception: the loan can become due earlier if the homeowner fails to pay homeowner’s insurance premiums, property taxes, or the home falls into disrepair.)
Paying for memory care with a reverse mortgage: how it works
Reverse mortgages typically take 4 to 8 weeks to process. Be sure to obtain objective advice on each lender before you decide. Talk to your financial advisor or consult an eldercare advisor for their perspective.
- Lenders will run a credit check, evaluate your income, assets and monthly living expenses. You also must be current on property taxes and hazard premiums.
- The approximate range for the costs of a reverse mortgage is 2% – 8% of the loan amount. Reverse mortgage lenders are required to provide a complete breakdown of costs in a document known as a TALC, or Total Annual Loan Cost.
- Typically, all associated fees are added to the loan balance. That means while you pay nothing out of pocket, you do pay interest on the loan fees.
- To qualify, homes must meet FHA property stands and flood requirements.
Key benefits of a reverse mortgage
- You can stay in your home and still get cash out of it.
- Heirs are not responsible for repayment.
- No monthly payments are required.
- Money received from a reverse mortgage is tax-free and does not affect Social Security or Medicare benefits.
- Paying for memory care with a reverse mortgage could offer you all the advantages listed above, as well as the peace of mind that you have found a sound funding source for your loved one’s care.
At Senior Star, we are here to serve you. We know that finding accurate and unbiased senior living information can become overwhelming. Contact us to learn more. And download our free guide “A Family Guide to Funding Senior Care & Housing” for more in-depth and helpful information.
