Reverse Mortgages

Background

Reverse mortgages enable older homeowners (age 62 and over) to borrow a portion of their home equity without having to repay the loan until they die, sell the home, or move out of the house. To be eligible, borrowers must live in the home as a primary residence; pay property taxes, homeowners insurance, and any homeowners association dues and assessments; and maintain the home 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. This can be an effective way to make a primary asset liquid enough to be used for LTSS without jeopardizing someone’s ability to remain in their home and receive services there.

Reverse mortgages are not a perfect solution and are not appropriate for all homeowners. They can be an expensive way to borrow money because the up-front costs are substantial. Mortgage and home financing options can be complex, and marketing materials may be confusing. So, it is important that those considering this option understand how the process works, which terms might be appropriate for them, and which lenders are reputable and experienced in this area.

REVERSE MORTGAGES: Policy

Ensuring consumer protections

In this policy: Federal

The federal government must require strong consumer protections in the Home Equity Conversion Mortgage reverse mortgage program, including provisions to ensure the borrowers can remain in their homes for as long as they fulfill the loan’s requirements.

The status of the home must be protected under Medicaid eligibility rules (see also Strengthening Financial Protections and Ensuring Choice for Beneficiaries and Their Families in this chapter).

Ensuring borrowers' access to public benefits

In this policy: Federal

The federal government must not restrict access to public benefit programs 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 purchasing 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.