Q. My husband, Steven, and I have lived in Northern Virginia for nearly 40 years, and we have no plans of moving. We are original owners of our home, and our mortgage has been paid off since 1998. Our children all live close by, so we are hoping to stay put for as long as possible. With the price of homes in Northern Virginia right now, we currently have more than $800,000 in equity in our home!
The pandemic has made things difficult these past two years. My husband lost his job, and our investments haven’t gone as well as they could have. We will need more money to make our retirement plans come to fruition, and most of the money we have is tied up in our home in the form of home equity.
Our need for money to retire comfortably and the fact that our children are all in a good financial situation is driving us to learn more about reverse mortgages as a way to age in place comfortably. Are reverse mortgages a good option at this time? What happens to people who already have a reverse mortgage and have trouble meeting their loan responsibilities? (Some of our friends are in this situation.) Thanks so much!
A. It’s been nearly two years since the start of the COVID-19 pandemic, and as the pandemic continues, many seniors in the community are still feeling financial pressures. One way senior homeowners have been able to relieve their financial stress has been through the use of a reverse mortgage.
Reverse mortgages have been around for 30 years, and over a million loans have been made during that time. They are part of the government’s Home Equity Conversion Mortgage (HECM) program, and most are guaranteed by the Federal Housing Administration (FHA). They are home loans that allow borrowers to pull most of the equity out of their homes for retirement needs. Unlike a standard home equity loan though, borrowers do not make monthly payments to repay the loan. Instead the loan is repaid when the borrowers die or sell the house. When it looked like COVID-19 might wreck the retirement plans of many older Americans, some turned to these mortgages as a source of money.
Kristen Sieffert, president of Finance of America Reverse (FAR), describes the unique situation being faced by seniors in light of the pandemic, saying “(a)s it relates to our demographic, I think [the pandemic] really shone a light on the importance of the ability to find ways to age in place. I think the home became the central area for everybody during the pandemic,” and discussed how some seniors want to be in their homes but many are struggling to make ends meet. She also explained how “(r)everse mortgage products offered qualifying clients a unique opportunity, especially for those who were either forced – or felt the need – to leave the workforce earlier than was planned.”
How Reverse Mortgages Work
For seniors who want to remain in their home, a reverse mortgage could be an option. Here’s how they work:
- In order to qualify for a reverse mortgage, borrowers must be:
- at least 62 years old and live in the home as their primary residence;
- either own their home completely or not have much left to repay on a traditional mortgage;
- cannot have federal debt in delinquency;
- required to complete financial counseling sessions that thoroughly explain the implications of reverse mortgages.
- When borrowers have been approved, they can receive their funds in several ways. It can be withdrawn as a lump sum, a fixed monthly stipend, or a line of credit to be drawn down as desired. The amount of money borrowers can receive depends on how much equity they have, how old they are at the time of the loan, and the current market interest rates.
- A reverse mortgage must be repaid in full when the borrower moves or dies. In most cases, this requires the home be sold to pay off the debt. Borrowers should realize that a reverse mortgage could make it very difficult to pass their home down as an inheritance to family members.
- Borrowers should also understand that they will still be responsible for paying their property taxes and homeowners insurance premiums as well as any other costs to maintain the home. Reverse mortgages also come with loan fees. Sometimes these can be rolled into the loan balance, but they may reduce the amount of funds available.
While reverse mortgages are not the right fit for everyone, during this time of low-interest rates, job loss, and a volatile stock market, they are an attractive option for some seniors to continue to live in the comfort of their own homes.
Reverse Mortgages Generally Do Not Affect Medicaid Eligibility
Please keep in mind that if you should need nursing home care in the future, as a general rule, a reverse mortgage does not affect Medicaid eligibility. Keeping money in a reverse mortgage line of credit in most states does NOT count as a resource for Medicaid eligibility purposes, so long as the house itself is an exempt resource. However, transferring money from a reverse mortgage line of credit to a bank account and leaving it there past the end of the month would generally convert the exempt home equity into a countable resource and that could make you lose your Medicaid eligibility. For more details on the advantages and disadvantages of reverse mortgages, please read our articles on the subject here.
Already Have a Reverse Mortgage? There Are Some Protections for Reverse Mortgage Borrowers as a Result of the Pandemic
For those who already have a reverse mortgage, if the COVID-19 pandemic has made it harder for you to meet your reverse mortgage loan responsibilities, there are options and resources available to you.
The responsibilities for HECMs include occupying your home as your primary residence, paying your property taxes or homeowners insurance on time, and keeping your home in good condition. Usually, if you are unable to meet these loan obligations your lender or loan servicer will notify you that your loan is “due and payable,” meaning it may be in default and foreclosed upon. The lender or loan servicer may also call a reverse mortgage loan due and payable when the reverse mortgage borrower dies. However, if you are a reverse mortgage borrower affected directly or indirectly by COVID-19, the CARES Act and guidance from the U.S. Department of Housing and Urban Development (HUD) can protect you from default and foreclosure if you have an HECM reverse mortgage. Read more here.
Planning for Long-Term Care
If you or your loved one is facing the possible need for long-term care and/or thinking about getting a reverse mortgage, you should get an opinion from an experienced elder law attorney who is also experienced with reverse mortgages, such as myself, before moving forward. Please call us to make an appointment for an initial consultation:
Fairfax Elder Law: 703-691-1888
Fredericksburg Elder Law: 540-479-1435
Rockville Elder Law: 301-519-8041
DC Elder Law: 202-587-2797
About Evan H Farr, CELA, CAP
