One of the requirements of a reverse mortgage is that you remain living in the home.
If you move to a nursing home or assisted living facility for more than 12 months, the loan becomes due and payable.
Luckily, you don’t have to pay off the loan right away. You have time.
Here are your options, and things to think about before you get a reverse mortgage if you might move to assisted living in the future.See if a reverse mortgage is right for you or your loved one.
Do you have a co-borrowing spouse?
The most popular type of reverse mortgage, the Home Equity Conversion Mortgage (HECM), is backed by HUD and the FHA program and offers borrowers, co-borrowers, non-borrowing spouses, and their heirs more protection.
If you have a spouse as a co-borrower whose name is on your HECM reverse mortgage as a borrower, and they intend to continue living in the home, the reverse mortgage status remains unchanged.
Your co-borrowing spouse can continue living in the home and receiving loan payments, and the loan will not be due until they move out, sell the home, or pass away.
Co-borrowers who are on the HECM must have been 62 or older at time of application. If not, they may have been placed on the paperwork as an eligible non-borrowing spouse.
Eligible non-borrowing spouses can remain living in the home, but can’t receive additional funds from the reverse mortgage. Any draws or monthly payments stop, and the line of credit is frozen. But at least the non-borrowing spouse can remain in the home.
If you have a non-HECM reverse mortgage, also known as a proprietary reverse mortgage or jumbo reverse mortgage, your co-borrowers, non-borrowing spouses, and heirs may not have the same protections.
The protections for these parties will be detailed in the reverse mortgage contract between the borrowing spouses and the reverse mortgage originator.
What are my options if I need to move to a nursing home and I’m the only one on the loan?
If you are the only person listed on your reverse mortgage and you move out, you will be responsible for repaying the loan. Fortunately, you have some options for repayment beyond just paying cash.
Related: Should You Use A Reverse Mortgage To Pay For Eldercare?
Refinance with a different kind of loan
If you qualify, you may be able to refinance your reverse mortgage into another type of loan, such as a traditional mortgage.
You’ll have to begin making monthly mortgage payments again, but this will likely be a better option for you than having to repay the full amount of the reverse loan with cash.
Refinancing to a traditional mortgage is often the best solution for families who wish to keep the home after their loved one moves to assisted living.See if you’re eligible for a refinance.
Pay off the reverse mortgage in cash
If you or your heirs have enough savings, you can simply pay off your reverse mortgage in cash.
Borrowers will be responsible for repaying the amount borrowed plus the interest.
Sell the home
One of the most popular repayment options is selling the home and paying off the reverse mortgage with the proceeds. Anything left over from the sale belongs to the borrower.
If the outstanding balance of the reverse loan is greater than the home’s value, borrowers or heirs generally are only required to pay 95% of the home’s value. FHA, the administrator of HECM loans, does not make borrowers responsible for the difference.
Forfeit the home to the lender
If you can’t refinance, sell your home, or cover the loan balance, you can provide what’s known as a “deed in lieu of foreclosure.” This means you are handing over your home to the lender so you can avoid foreclosure.
While you cannot pass your home on to your heirs with this option, you all will be free from the financial obligations associated with the loan.
How long do I have to pay back the reverse mortgage?
Reverse mortgages become due if the borrower does any of the following:
- Moves out
- Sells the home
- Stops paying taxes and insurance
- Stops maintaining the home
- Passes away
If a borrower moves to assisted living or a nursing home, they generally have at least 12 months before the loan becomes due.
However, communication with your lender is key. They ultimately want the loan to be repaid, and they don’t want to take your home.
They’ll usually work with you to provide an extension if 12 months is not long enough and you plan to sell or refinance the home. Extensions often are given in three-month increments.
What happens to a non-borrowing spouse if I have to move into a nursing home?
If your spouse is not or cannot be a co-borrower due to their age or other factors but they are listed as an eligible non-borrowing spouse, they can remain in the home and the loan will not be due.
Eligible non-borrowing spouses must be able to meet the following requirements:
- Listed as an eligible non-borrowing spouse in the mortgage agreement
- Intend to remain married to the borrower
- Can prove that they have the right to remain in the home
- Continue to meet the loan requirements, including remaining in the home and paying property taxes and insurance
In the past, eligible non-borrowing spouses were not offered as much protection. Changes to the program in recent years provide more options.
Make sure you discuss with your lender in detail your non-borrowing spouse’s options if you move out or pass away.
If your spouse is considered an ineligible non-borrowing spouse but you want them to remain in the home after you move to assisted living, talk to your lender about their options for occupying the home after you move.
If not, the ineligible spouse will either have to refinance, pay off the reverse mortgage, or move out of the home.
Bottom line: Don’t get a reverse mortgage if you’ll move into a nursing home soon and you will be the only one on the loan
Reverse mortgage fees are high—many come with fees of $20,000-$25,000 or more.
If you were to move to assisted living shortly after taking out a reverse mortgage, you’d waste your money and home equity because you won’t have enough time to benefit from the loan.
Carefully consider whether a reverse mortgage is the right option for you by estimating when you could potentially need additional care or assisted living services, and speaking with a financial advisor.
A home equity line of credit might be better.
Seniors and their families can work together to determine the timeline for additional care needs and assistance based on the following factors:
- Consulting with healthcare professionals
- Assessing your Activities of Daily Living (ADLs) for the ability to independently perform daily activities
- Consider your overall health, including chronic illness or recent medical events
- Evaluate your current living environment for potential risks such as falls or other injuries
- Consider your current financial situation
- Create a family emergency care plan in case of injuries or emergencies
If you believe you have several years before you might require additional support or assistance, a reverse mortgage may be a smart option.
Find out if you qualify for a reverse mortgage
The best way to determine whether a reverse mortgage is right for you is to discuss your options with an experienced lender who can walk you through the process.
While a reverse mortgage isn’t a solution for everyone, for many it can be the best option for tapping into home equity — with no repayment.Find out if a reverse mortgage is right for you.