Reverse Mortgage – Blessing or Curse?
Those reverse mortgage advertisements look like blessings to seniors. But, is it in reality a blessing or a curse?
“Wow, honey, I think that could work for us. That reverse mortgage looks as though it could solve any money problems we have. What do you think? June’s voice held a hint of excitement.
“Let me check on it a little further. Did I understand the ad correctly? We get the money to do anything we wish with it. We never have to pay it back? Something sounds just a little too good to be true and you know what they say about that.” Marcus’ brow furrowed in thought. “If it really is as good as it sounds, those river cruises we want may not be so out of the question, after all.”
The next day, Marcus opened the conversation at the dinner table.
“I checked on the reverse mortgage and I’m afraid there’s a little more to it than we’re being told on those commercials. It isn’t quite the overall blessing being pushed by movie stars.”
“What do you mean?”
Reverse Mortgage Is Not For the Total Home Value
“If we sign for a reverse mortgage, we receive only fifty percent of our appraised worth since we just turned 62. The amount goes up a little each year with our age, but overall, we could lose a lot of the home’s value. The preference is to send us some on a monthly basis, although some cases might allow a lump sum.”
“Why so little against the value of our home? That doesn’t seem quite fair.”
“The company says it is to make certain the loan could be repaid. Another factor is that if that house does not go to heirs, but must be given to the company after out deaths, they make quite a nice piece of change should they sell it. We have heirs. If we take fifty percent or any amount, when the house is taken over by our children or sold by them, they have to repay the loan, complete with a hefty interest rate that we do not pay during our lifetime. So, if we leave them the house, immediately they are saddled with a monthly payment, or if it they are fortunate enough to sell it, they have to repay the loan in full plus accumulated interest for the years we did not pay.”
“I think they would probably have to sell it. They already have their own mortgage and I doubt they want to take on another one.” June moved over to the sofa and motioned Marcus to join her.
He stopped long enough to pour two glasses of Spring Creek sweet red wine.
Would a Reverse Mortgage Affect Entitlement Programs?
Although a Reverse Mortgage does not affect Medicare and Social Security payments, it may very well effect Medicaid and SSI. The latter program, SSI, is available for the disabled, such as our daughter, who was born with Down’s Syndrome. As for Medicaid, what many people do not understand is if they own a home, it may be taken by that program. If large medical bills are run up and Medicaid has been paying them, the program demands repayment. That means the loss of whatever property you own after your death. However, if you get a reverse loan before signing up for an entitlement program, it must not be shown as income. It is simply a loan you are making to yourself.
What If the Selling Market Is Slow?
“With our current location, sales are always tremendously slow. It could literally take a couple of years to get it sold. Would we want to have that fall in our heirs’ laps at the same time they are getting our estate settled? And, there is another item to consider. They will take over the care of our daughter, for the rest of her life. No, I cannot see taking on the reverse mortgage.”
“It’s not as though we are suffering. We paid cash for the house, so, at the moment, we have only utilities and groceries, for the most part. Our retirements are sufficient for current costs and allow for special cruises occasionally. I think a reverse mortgage might be a worse problem for us at this time.”
Marcus agreed. “However, it is something to keep in mind for the future. If either of us passes away, that person’s retirement amount going to the spouse reduces considerably. That might be a perfect time to consider a reverse mortgage. Having an extra check coming in each month could mean the difference between having a good life or merely surviving. So there is a place for the plan, should our circumstances change.
“True, but don’t you plan on going anywhere now that we finally have time to spend together.” June gave him a playful tap in his ribs before snuggling close to watch their favorite television program.