Wisdom might come with getting older, but unfortunately so can physical and mental ailments that leave an elderly individual entirely dependent on the medical system for maintaining their health. Naturally, this can run into some serious financial strain. Says a recent article, aging persons who have built up a substantial amount of equity in their family homes can elect to tap into it through a reverse mortgage loan to assist them in covering the cost of medical bills, long-term health care, and other health-related expenses that can be draining their bank accounts.
According to the loan experts at All Reverse Mortgage, there exists a variety of loan options seniors can choose from to borrow against the value of their homes to help pay for healthcare-related costs. With interest rates being a primary factor in determining how much cash you can get from your loan, borrowers with the lowest rates will naturally receive more proceeds from their loan. But keep in mind, not all reverse loans are the same.
Here’s a rundown of a few different reverse loans that might appeal to you and your family if you are in need of more cash to help pay for health care, not only in the short term but over the long haul.
Defining the Reverse Mortgage
At base, a reverse mortgage is a home equity loan designed for people aged 62 and older. Unlike its fixed-rate, home-equity loan cousins, reverse mortgages do not mandate that borrowers make regular monthly payments. The loan gets paid back when the borrower dies or decides to move out and sell the home.
Because reverse loan mortgages don’t require borrowers to make monthly payments, their home equity is said to be mathematically reduced in proportion to the amount of loan proceeds they are granted. But the cash a homeowner gets via a reverse mortgage is tax-free. Borrowers can also choose to go with an adjustable-rate or a fixed rate.
Home Equity Conversion Reverse Mortgages
Insured by the U.S. government and the Federal Housing Administration or FHA, HECMs are a popular choice among aging Americans. That’s because, if the amount that’s owed on this type of loan ends up exceeding the value of the borrower’s home, the FHA will pick up the loss.
Unlike single-purpose reverse mortgages, the cash a borrower is granted with a HECM loan can be used for just about any purpose, including long-term health care and medical bills. You can also use some of the money to cover past due bills and home repairs if you so choose.
Proprietary Reverse Mortgage Loans
Proprietary loans, unlike HECM loans, don’t offer government guarantees since they are backed by private businesses. But depending upon the lender, proprietary reverse mortgage loans have fewer rules and restrictions. The eligibility conditions are also said to be far less stringent.
Since there’s no FHA-imposed maximum claim limit like there is on a HECM loan, proprietary reverse mortgage loans are perfect for wealthier clients whose homes are worth $1 million or more. However, the fees for this brand of reverse mortgage loan might be higher.
Single Purpose Reverse Mortgage Loans
The single-purpose loan is said to cost less than both HECM reverse mortgages loans and proprietary reverse mortgages loans. This brand of home equity loan is offered by state and local governments. Even certain nonprofit organizations offer single-purpose mortgage loans.
You will find, however, that the availability of single-purpose reverse mortgage loans is limited. They are also designed for borrowers on a fixed or limited income, and therefore might not meet the requirements of more expensive loans.
While other loans come with zero or few restrictions on how proceeds can be spent, single-purpose reverse mortgage loans must be used for “a specific, lender-approved purpose.” One of these purposes might be long-term health care.
Long-Term Health Care Options with a Reverse Mortgage Loan
Now that you’ve successfully met the requirements for your reverse mortgage loan, you will be wondering what kinds of long-term health care options will be made available to you. Familyassets.com states that you can get adult daycare, home care, independent living assistance, assisted living support, nursing home care, memory, and dementia care, and more.
Short-term care needs, such as those required after an accident or surgery, will also be covered with your loan proceeds. So are certain medications and medical devices. But you must be aware that payment for long-term healthcare residences can only be funded through reverse mortgages under specific circumstances, since technically speaking, the borrower is not living in their family residence.