Reverse Mortgage and Health Care Costs

When it comes to planning for retirement, you can expect health care to be one of your major expenditures along with housing and transportation. Unlike in previous generations, you may not have access to employer-sponsored retiree health benefits¹. With health care costs utilizing a significant part of your retirement savings, you will want to have a plan in place for when these expenses arise.

When planning for health care costs, retirees can consider the option of a reverse mortgage.  One type of reverse mortgage is a Home Equity Conversion Mortgage (HECM)² which is insured by the Federal Housing Administration (FHA) for homeowners who are 62 years and older. A HECM loan allows senior homeowners to access a portion of their home’s equity into funds that can be used to pay for everyday living expenses, medical/prescription costs, cover large or unexpected expenses, or set aside proceeds for an emergency fund.

Benefits of a Reverse Mortgage

• Eliminate Monthly Mortgage Payments³: Senior homeowners can increase their monthly cash flow by eliminating their currently regular monthly mortgage payment, allowing them to focus on other financial obligations.
• Access to a Low-Cost Line of Credit⁴: With an adjustable-rate HECM, there is the ability to draw from a line of credit at any time (in any amount) until the line of credit is exhausted, or let it sit and grow over time, allowing access to additional cash if the home value increases.
• Receive Funds in a Lump Sum⁵: With a fixed-rate HECM, seniors have the option to receive a portion of their home’s equity in a lump sum, often to pay for medical expenses or to consolidate debt.
• The Ability to Age in Place⁶: A HECM allows seniors to age in the comfort of their homes while maintaining ownership and the title.

Interested in learning more about how to use a reverse mortgage as part of your retirement plan? Call (800) 976-6211 to speak with a licensed reverse mortgage advisor for a free, no-obligation loan assessment.

Important Disclosures

¹ https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

² As required by the Federal Housing Administration (FHA), you will be charged an up-front mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance. In addition to the MIP, HECMs will also require you to pay an appraisal fee, costs at the loan closing, interest on the amount funded, which is compounded, and a potential set-aside based on life expectancy.

 ³ Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing. You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.

⁴ The reverse mortgage loan balance grows at the same rate as the available line of credit. Line of credit growth occurs and is only a benefit when a portion of the line of credit is not used. The unused line of credit grows over time and more funds become available during the life of the loan.

⁵ The funds available to the borrower may be restricted for the first 12 months after loan closing, due to HECM reverse mortgage requirements.  In addition, the borrower may need to set aside additional funds from the loan proceeds to pay for taxes and insurance. This disbursement option is only available for a fixed-rate loan.

⁶ You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.