“A recent survey showed that more than 40% of Baby Boomers (those born between 1946 and 1964) have less than $100,000 in retirement savings. That means those right at the retirement window won’t be able to maintain the lifestyle they want once they retire. You might think Social Security will help. Think again – the average monthly Social Security check in 2018 is just $1,404….
Reverse Mortgage Recap:
In a typical mortgage, you obtain a loan for the purchased real estate and then slowly, over the life of the loan, pay it back to the bank. The reverse mortgage works exactly the opposite… We get the bank to pay us while our health is good, and we don’t have to pay it back until we die or move out of the home.
Once approved, you can receive your loan money in several ways. You can take the money as a lump sum, a stream of payments, a line of credit, or a combination of the three.
Reverse Mortgage Precautions:
Depending on how you receive your reverse mortgage payment or payments, you could risk losing your eligibility for Medicaid.
Maybe you aren’t thinking about Medicaid just yet. After all, Medicare covers a wide range of health services. Here’s the kicker: Medicare only covers short-term care in a skilled nursing facility or rehabilitation care in a nursing facility. Medicare will not cover any long-term care, including care at a nursing home.
That’s where Medicaid comes in. Medicaid is the primary payer for nursing-home care in the U.S.
That means if you take out a reverse mortgage now and suffer a stroke two months later, you might not qualify for Medicaid and will have to pay out-of-pocket for all your nursing-home care.
Taking a lump sum payment or getting monthly payments that you don’t exhaust each month (meaning you’re building up your savings account) triggers something called the spend-down rule.
Basically, you only qualify for Medicaid if you meet the financial requirements. In other words, if you have too much money in your bank account, Medicaid expects you to spend that on your care before you qualify for assistance. You have to “spend down” what you have to reach that point.
And keep in mind, nursing-home care runs up the bill. In 2016, the national average for a shared room in a nursing home was $225 per day. That’s more than $82,000 a year.
The second consideration for taking out a reverse mortgage is the possibility of moving. If you don’t live in your home for at least one year (for instance, if you’re in a long-term care facility) or if you sell the home, the loan would come due. That means paying it back in full….
Also, if the housing market drops or your home loses value for any reason, you might not be able to sell it for the full amount of the loan. In that case, you’d have to make up the difference….”
-Dr. David Eifrig
