Senior Citizen's Guide digital books
Senior Citizen's Guide

Using Reverse Mortgages for Health Care

Paying for health care has become a critical issue for older Americans and their children. As costs continue to rise for prescription drugs, in-home care, and physical rehabilitation, seniors have to shoulder a larger share of the financial burden or turn to their children for help.

While Medicare, Medicaid, HMOs, and private insurance pay for doctor's visits, hospitalization, and home care, these plans frequently require co-payments and insurance deductibles. Medicare does offer prescription drug coverage, but many plans do not cover related expenses that can help a senior cope with frailty, illness, or disability, such as home modifications, transportation, or other comfort-oriented services.

Fortunately, there's an easier way for seniors to pay for health care needs. It's a reverse mortgage, a unique loan that allows seniors to convert equity in their homes into available cash.

A reverse mortgage enables homeowners 62 or older to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. It's called a reverse mortgage because the flow of payments is reversed compared to a traditional home mortgage. The lender makes payments to you, or arranges a line of credit that's available for your use. This differs from a traditional mortgage used to purchase or refinance a home, in which you must make monthly mortgage payments to a bank. With a reverse mortgage, you retain title to your home and can't be forced to leave. The loan is repaid when you permanently leave your home.

The versatility of reverse mortgages can provide you with a range of financial options that enable you to choose the kind of health or personal care you desire, in the setting you prefer. Because the funds from a reverse mortgage can be taken by the borrower as a lump sum, monthly payment, line of credit, or a combination of these, you have tremendous flexibility when planning how to address your health care needs. For example, you might choose to receive monthly payments to budget for often overlooked needs such as a cleaning service, grocery delivery, or transportation.

Or, you might select a line of credit because that's the best strategy for you to pay your annual Medicare or private insurance deductibles or HMO co-payments on doctor visits and prescription drugs. No matter what your needs are, a reverse mortgage gives you more choices and a better way to plan your own care with confidence.

A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid, any reverse mortgage proceeds that you receive must be used immediately. Funds that you retain would count as an asset and could impact Medicaid eligibility. For example, if you receive $4,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine. Any residual funds remaining in your bank account the following month would count as an asset. If the total liquid resources (including other bank funds and savings bonds) exceed $2,000 for an individual or $3,000 for a couple, you would be ineligible for Medicaid. To be safe, you should contact the local Area Agency on Aging or a Medicaid expert.

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