Medicaid and Reverse Mortgages
Marie Bjornson, CPA, Reverse Mortgage Advisor
Reverse mortgages are often advertised to seniors as a way to use the equity in their homes to increase their standard of living. Is this understandable? Under what conditions?
What would happen if one person needed to move into a nursing home? Why don't we have a look?
A traditional mortgage allows you to repay monthly a lump sum amount that is borrowed from a bank or mortgage company. Therefore, it is necessary to ensure that you can meet the payment by setting aside cash flow each and every month. The bank may foreclose on your home if you fall behind. But, with a reverse mortgage, the bank or mortgage company sends YOU a check every month and, as long as you live in the house, you do not have to pay them back. If the loan is to a married couple then no repayment of the loan is due until neither person is still living in the house. Then the loan, with interest, must be paid back. The house will be sold if family members cannot pay off the loan. If the house is worth more than the loan, then the bank can do nothing and cannot request more from any family members.
A reverse Mortgage might be an excellent option for you if:
- You are low on cash on a monthly basis
- You cannot provide your children and grandchildren with lifetime gifts in which you desire
- You want a health plan that will cover what Medicare does not
- You desire taking an extended vacation
- Your spouse is having to take part in assisted living
- You are interested in lowering your home's interest while still living in the home but without repaying the loan in your lifetime .
The amount in which you can borrow will depend on your own age as well as the house's worth and the interest rate. Your life expectancy shortens as you age and the bank therefore will not have to wait, as long to be repaid, so you will be eligible to borrow more money if you are older. The amount of money you can borrow lessens as the interest rates go up.
Reverse mortgages are not necessarily the answer for a single person that expects to leave their home in the near future, because as soon as they move out the mortgage must be repaid. The house would then be sold, and the cash protected by the home exemption would be exposed. Then you need to decide what to do with the money so the person can qualify for Medicaid. In a situation where one spouse is in a nursing home, a reverse mortgage can provide the healthy spouse that remains at home with additional income. Medicaid does not see the payments from the loan as income some of the earnings from the spouse in a nursing home could be put towards the necessary bills for the spouse watching the home.
Anyone considering obtaining a reverse mortgage would be advised to consult with a knowledgeable financial planner or specialist in reverse mortgages prior to making any decision. Marie Bjornson, CPA, branch manager of Envoy Mortgage, specializes in helping to show his clients their hidden retirement account. You can confidentially contact her at (360) 676-9600 or at Marie@Wa-mortgage.com.
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