Reverse Mortgages

Background

Reverse mortgages enable older homeowners—those ages 62 and older—to tap a portion of their home equity without having to repay the loan as long as they live in the house and meet the obligations of the loan. Repayment of the loan is not required until the last borrower dies, sells the home, or moves out permanently. Many older people are apprehensive about depleting their equity to meet long-term services and supports (LTSS) needs because their homes represent a major source of their financial security. Reverse mortgages can be an expensive way to borrow money if the loan term is short since the up-front costs are substantial (see Chapter 11, Financial Services and Consumer Products: Financial Services—Reverse Mortgages). States are already required to tap into an individual’s home equity through estate recovery after death to recoup Medicaid LTSS costs (see this chapter’s section Medicaid—Strengthening Financial Protections for Beneficiaries and Their Families).

Other proposals would create incentives to use reverse mortgages to purchase private long-term care (LTC) insurance. Even with such incentives, the costs of using reverse mortgages for this purpose are very high, and agents may target people who would not be appropriate candidates for private LTC insurance (see also Chapter 11, Financial Services and Consumer Products: Financial Services—Banking, Credit, and Debt—Reverse Mortgages).

[1] Many older adults and people with disabilities prefer the term “long-term services and supports,” rather than “long-term care,” because the term “care” may imply dependence and seem paternalistic. In this book, the term “long-term care” is used only when referring to specific programs or products that use that term.

Reverse Mortgages: Policy

Consumer protections

In this policy: Federal

The federal government must require strong consumer protections in the Home Equity Conversion Mortgage reverse mortgage program. These protections must include assurances that borrowers can remain in their homes for as long as they fulfill the requirements of the loan terms. Borrowers must:

  • live in the home as a primary residence;
  • pay property taxes, homeowners insurance, and homeowners association dues and assessments; and
  • maintain the home.

The status of the home must be protected under Medicaid eligibility rules (see this chapter’s section Medicaid: Strengthening Financial Protections for Beneficiaries and Their Families).

Benefit restrictions

In this policy: Federal

The federal government must not further restrict access to public benefits for people who receive loan proceeds from reverse mortgages.

Use of federal incentives

In this policy: Federal

The federal government must not encourage the use of reverse mortgages through incentives that require purchase of private long-term care insurance.

Federal government incentives for using reverse mortgages to pay for long-term services and supports must be voluntary and should focus on reducing the high costs associated with these loans.

Such incentive programs should be tried only on a demonstration basis first because they place at risk older homeowners’ primary asset.