Reverse mortgages can seem like a wonderful idea when a cash-strapped senior needs funds. There are some situations where reverse mortgages make sense. However, there are other situations where a reverse mortgage is not the answer. As their popularity increases, many expensive mistakes are being made. Here are some things you should know:
• A reverse mortgage has the potential for making an otherwise eligible individual disqualified from Medi-Cal if nursing home care is needed, or from VA Aid and Attendance benefits. Reverse mortgage loans become due and payable when the borrower permanently moves away from the home, i.e., 6 months or more. If the senior moves into a care facility or nursing home, and is unable to pay off the loan, then he or she will be forced to sell the home to pay off the reverse mortgage debt, or the house will be subject to foreclosure. Any cash left over after the sale will count against the senior’s cash reserve for Medi-Cal and/or VA Aid and Attendance benefits, and may cause the senior to become ineligible for these critical benefits. The irony here is that a home is exempt for purposes of qualifying for Medi-Cal and VA benefits. So, the reverse mortgage could prove to be a very expensive mistake.
• Some reverse mortgage brokers are actively seeking insurance agents to promote reverse mortgages in order to fund annuities. Many of these products are unsuitable, interfere with long-term care benefit planning, and lead to a loss of control. The cost of the reverse mortgage, including fees and charges, usually far exceed any benefit of the purchased annuity.
• Some agents are also encouraging seniors to take out reverse mortgages in order to purchase long-term care insurance. This is a problem not only because of the high cost of the reverse mortgage and the Medi-Cal/VA benefit issue, but also because of the “cap” that long-term care policies pay. A policy that pays $150 per day for a nursing home will be of limited value if the actual charge is $600 per day.
Our seniors may not be in a position to understand the “down side” of reverse mortgages, or the other options available. It is important to weigh all the pros and cons before making such an important financial decision.
For more information or an appointment regarding this issue and other issues involving seniors, please call the Law Office of Jane M. McNamara at 661-287-3260, or visit our websites at www.janemcnamara.com and www.vabenefits4seniors.com.