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  • Accelerating in reverse: The growth of large reverse mortgages and their effect on benefits for long term care

 

Reverse mortgages are growing in popularity.  It is difficult to watch television without seeing a commercial for these products.  Reverse, mortgages allow a senior to take equity out of their residence to use it for long term care expenses.  The loan is taken against the value of the home, no payments are due until the home is sold, interest builds up over time, and the government guarantees that the borrower will always be able to stay in the home.  Traditionally, reverse mortgages were only available for a few hundred thousand, but now there are products that allow for the borrowing of up to $3,000,000.  There are disadvantages to reverse mortgages when it comes to planning for benefits for long term care.

There are two primary benefits that are considered when planning for the costs of long term care, nursing home Medicaid and  VA Pension.  These benefits cover the cost of long term care for those individuals who have a medical need for such care.  Along with showing a medical need for such care, an applicant for nursing home Medicaid and VA Pension must meet income and asset requirements.  The residence of the applicant is excluded for nursing home Medicaid and VA Pension.  However, if the residence is sold, the proceeds will be countable and cause loss of long term care benefits.  The problem caused by reverse mortgages is that when a borrower moves out of a residence subject to a reverse mortgage, the residence must be sold immediately to pay off the loan.  This can cause loss of benefits.

While reverse mortgages can be an effective tool for paying for long term care costs, they should be part of a balanced plan based on the advice of an experienced elder law attorney.