Reverse mortgage loan proceeds can be used in a number of ways by borrowers who want to solve an issue with their cash flow. However, it’s becoming more and more common for borrowers to use the proceeds to pay for long-term care (LTC), like a nursing home, according to a recent article published in U.S. News & World Report.
“Lately, reverse mortgages have resurfaced,” said Niv Persaud, a certified financial planner and managing director of Transition Planning & Guidance. “There’s a lot of regulation around it, so [lenders] have improved that product. So, if you have one spouse who needs to go into a nursing home and the other spouse doesn’t, they may want to look and see if a reverse mortgage makes sense for them to be able to afford that nursing home.”
While a reverse mortgage can be a route to finance nursing home care for a spouse, a financial advisor can help reverse mortgage borrowers identify options for the loan proceeds that they may not have considered, Persaud said.
It’s also important to discuss later-life care as early as possible, according to Persaud, in order to avoid making plans at a point when it’s too late to be effective.
When considering nursing home care, it’s also smart to avoid unnecessary extravagances, such as a private room or extra amenities. Such things can cause the cost of care in a nursing home to balloon considerably, Persaud said.
In this scenario, it’s also important to remember that a reverse mortgage can only remain in good standing if the primary borrower remains in the home. Occupancy is a core requirement to avoid an acceleration of the loan to due and payable status.
Keeping up with home-related expenses, such as property taxes, homeowner’s insurance and (if applicable) homeowner’s association (HOA) fees, is another.
The scenario described by Persaud — where one spouse remains in the home while the other enters a nursing home — is certainly doable under the terms of a Home Equity Conversion Mortgage (HECM) loan or most of its proprietary alternatives.
Read the column at U.S. News & World Report.