Can a Reverse Mortgage Keep You Out of the Nursing Home?

Article submitted by Linda Jaikes. She can be reached at 239-263-9195.

Well perhaps it could. But first, let's talk about what a reverse mortgage is and then find out how it can help you.

The reverse mortgage is a rather misunderstood program offered to seniors over the age of 62. There are several types of mortgages. The most popular is the Home Equity Conversion Mortgage (HECM) which was designed by the US Department of Housing and Development (HUD) and is insured by FHA. This insures the borrowers that they will receive all payments while living in the home. It also protects both borrowers and lenders against the risk that the loan balance might exceed the value of the home. As a borrower you will never owe more than the loan balance or the value of the home and no other assets can be required to repay the loan. The borrower retains 100% ownership and no payments are required until the last borrower moves out of the house.

While the reverse mortgage has been around since 1988, it is still a relatively new concept. It is very important for the borrowers to understand that these loans are one of the most federally scrutinized and regulated loan programs. All prospective borrowers must receive counseling from a federal-sanctioned counselor before even applying for this type of loan.

The program works best for seniors who have a certain amount of equity in the home. Even if you have a mortgage you may still qualify. The money you receive can be used for anything you desire. Oh, and by the way, the money is tax free!

So let's look at how the reverse mortgage can keep you out of the nursing home. It is a common fact that seniors are the fastest growing segment of our population. Due to modern medicine and healthy living habits, people are living longer but dying slower. The statistics are alarming. So how do we plan properly for the fact that we have about a 50% chance of needing long term care?

So what can you do? Well, you could take out a reverse mortgage and purchase a long term care insurance policy assuming you are insurable. That would be the most prudent thing to do. Since these policies are designed to help you stay at home, statistically gives you about an 80 percent chance of staying home if you needed care. This is what most people desire to do. In the "2007 Medicare and You" page 62 mentions using reverse mortgages to pay for long term care insurance.

A lesser attractive yet viable solution if you already need care is to take out a reverse mortgage to pay for the care in your home. Since the income from a reverse mortgage can be paid out on a monthly basis you could use the funds to pay for home care.