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Reverse mortgages are often cited as one way to pay for long-term care costs. The government's long term care website even has a whole section devoted to them. |
Unfortunately, while a reverse mortgage can provide cash to your senior parents, they may not necessarily be a good option for long-term care in every situation. |
Basics of reverse mortgages A reverse mortgage works exactly how it sounds. Rather than sending monthly payments to a mortgage company, the company sends payment to you. |
Most reverse mortgages are offered through three types of loans Home Equity Conversion Mortgage (regulated by the federal government), Fannie Mae Home Keeper Loan and the Financial Freedom Cash Account Loan. |
All three work similarly, and borrowers must be 62 and live in the home. In addition, a reverse mortgage can only be taken out on a primary residence. The money can be used for any purpose, including long-term care, and reverse mortgages come with many advantages. |
- No credit or income requirements
- Funds available as a lump sum, monthly payment or line of credit
- Proceeds do not count as taxable income so long as money is spent in the month received
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Danger of using a reverse mortgage for long-term care However, there is a caveat to reverse mortgages that may make you think twice before using one to fund your parent's long-term care. |
A reverse mortgage only works so long as an individual is living in the home. Should they require placement in nursing home or assisted living facility, the mortgage must be paid back once they move. That may mean selling the house or raiding savings and investments that were intended for other purposes. |
While a reverse mortgage may be an option for those planning to use in-home care exclusively, it might not be the right choice for someone whose condition is worsening. In those situations, you may want to consider other options, to help pay for care. |
Of course, this is just a brief introduction to reverse mortgages and is meant only to provide some preliminary information to ponder. You'll naturally want to do more in-depth research on any funding option you choose to use. |
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