Senior couple talking seriously with adviser

Dear Senior Living Adviser,
Is a reverse mortgage a bad deal for someone older with no heirs?
— Pauline Ponders

Dear Pauline,
I think reverse mortgages are going to increase in popularity among seniors, regardless of whether they have heirs to inherit their estate, just because of the need for retirement income that isn’t being met by Social Security, retirement savings or pension benefits. Even for those who do have heirs, a reverse mortgage doesn’t necessarily mean there is no equity left in the home to inherit when the senior dies.

Don’t take the step lightly. It’s not an inexpensive way to tap the equity in your home, and depending on which option you choose in how you receive the money, you may lose the ability for your home to provide you with a safety net in the event of a financial emergency.

Here’s what it says on the frequently asked questions page of the Department of Housing and Urban Development website about the home equity conversion mortgage, or HECM.

For adjustable-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 — A 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.
  • Single-disbursement lump sum — A single lump-sum disbursement at mortgage closing.

Part of the application process for a reverse mortgage includes counseling so that seniors understand their financial commitments, like continuing to pay property taxes and homeowners insurance, and how the reverse mortgage works. The counseling is available for free or at a low cost from a HUD-approved housing counseling agency in your area.

You didn’t provide the particulars of your financial situation or what financial goals you hope to accomplish with a HECM. I also don’t know your age or whether you are facing any health issues.

Where I’m going with this is that the option you pick for payments on your reverse mortgage may influence your Medicaid eligibility. Along with HECM counseling, you may want to hire an elder care attorney to discuss a long-term-care strategy before selecting a payment plan.

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