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Dear Senior Living Adviser,

I’m in the process of doing a reverse mortgage. My retirement income is $900 per month. My concern is my health, primarily my spine. If within five years it’s determined that I can’t live on my own, is doing a reverse mortgage still a good idea? I can’t predict my health, but this is a concern.

— Beverly Bungalow

Dear Beverly,

As I see it, you have two conflicting goals: gaining retirement income by tapping the equity in your home with a reverse mortgage, and paying for long-term care once you can no longer live on your own. On the retirement income side, a reverse mortgage could hurt your ability to qualify for Medicaid, if that’s how you plan to cover long-term care costs.

You didn’t mention your long-term care plans. Do you have a long-term care policy? If not, and you’re no longer able to live on your own, with some short-term exceptions, Medicare doesn’t pay for long-term care. Medicaid does pay for long-term care, but you have to qualify for Medicaid assistance.

Getting a lump-sum reverse mortgage payment creates a nest egg that Medicaid is likely to require you to spend down prior to qualifying for Medicaid benefits. Using the lump sum to buy an annuity doesn’t protect the annuity payment stream from Medicaid, considering the income for a person on his or her own.

You should really sit down with an elder law attorney and discuss your long-term care plans before proceeding with the plan to get a reverse mortgage for providing you with additional income in retirement.

A reverse mortgage will become due once you stopped living in the house for a period of 12 consecutive months. If your guesstimate of being able to live on your own for only five years is correct, then the reverse mortgage would come due in approximately six years.

That said, depending on the home’s accessibility features and your ability to afford home care, not being able to live alone may not mean that you can’t stay in your home for longer. If it’s feasible, you could plan to use part of the reverse mortgage proceeds to make your home more accessible.

There are several payment options with a Federal Housing Administration reverse mortgage, also known as a home equity conversion mortgage, or HECM. The HECM fact sheet for the U.S. Department of Housing and Urban Development states:

“For adjustable interest rate mortgages, you can select one of the following payment plans:

  • Tenure: Equal monthly payments, as long as at least one borrower lives and continues to occupy the property as a principal residence.
  • Term: Equal monthly payments for a fixed period of months selected.
  • Line of credit: Unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
  • Modified tenure: Combination of line of credit and scheduled monthly payments for as long as you remain in the home.
  • Modified term: Combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.”

For fixed interest rate mortgages, you will receive the single disbursement, lump-sum payment plan.

If you wind up being in the reverse mortgage for only six years, some of these payment plans will end when you leave the home. You should make discussing the payment options a priority in the counseling session that is mandatory for all seniors when applying for a HECM mortgage.

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