Reverse Mortgages

Background

A reverse mortgage A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… is a loan secured by the value of a home and does not require payments as long as the borrower lives in the home. Most reverse mortgage A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… loans are Home Equity Conversion Mortgages A federally-insured reverse mortgage that allows homeowners age 62 and older to tap into the equity in their home without having to make monthly mortgage payments while still living there. Borrowers can receive loan proceeds via a single lump-sum payment, tapping a credit line as needed… (HECMs). They are insured by the Federal Housing Administration. In addition to HECM A federally-insured reverse mortgage that allows homeowners age 62 and older to tap into the equity in their home without having to make monthly mortgage payments while still living there. Borrowers can receive loan proceeds via a single lump-sum payment, tapping a credit line as needed… loans, some lenders may offer proprietary reverse mortgageA reverse mortgage that is not insured by the Federal Housing Administration. loans, which are not insured by the federal government.

Reverse mortgages A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… enable homeowners age 62 and older to convert a portion of their home equity into cash. Reverse mortgage A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… proceeds can be used for any purpose. This includes helping to pay for in-home personal care, adult day services, home modifications to enable aging in place, or long-term care insurance (LTCI). However, some older adults are apprehensive about depleting their home equity to meet long-term services and supportsLTSS encompasses a broad range of assistance with activities of daily living and health-related tasks for people with functional limitations caused by physical or mental impairments. LTSS may be delivered in institutions or in a person’s home or a residential care setting. needs because their homes represent a major source of wealth and, therefore, their financial security.

A reverse mortgage A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… is considered a loan, not income. As such, the loan will not generally be viewed as a countable asset under Supplemental Security IncomeThe SSI program was designed to reduce poverty by providing basic cash support to people with low income and assets below certain thresholds who are aged, blind, or disabled. ( SSIThe Supplemental Security Income (SSI) program was designed to reduce poverty by providing basic cash support to people with low income and assets below certain thresholds who are aged, blind, or disabled. ) or MedicaidA joint federal/state program that provides health care and LTSS. However, to qualify for Medicaid LTSS, people must have extremely low assets and income, or they have to “spend down” most of their assets. guidelines. Reverse mortgage A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… proceeds do not count toward the federal asset limitThe value of assets a person or family can have and still qualify for public assistance benefits. when they are spent in the same month they are received. However, proceeds that are unused at the end of any month may be considered a countable asset. If that amount pushes the borrower over the federal asset limitThe value of assets a person or family can have and still qualify for public assistance benefits. , the borrower could lose their SSIThe Supplemental Security Income (SSI) program was designed to reduce poverty by providing basic cash support to people with low income and assets below certain thresholds who are aged, blind, or disabled. or MedicaidA joint federal/state program that provides health care and LTSS. However, to qualify for Medicaid LTSS, people must have extremely low assets and income, or they have to “spend down” most of their assets. eligibility. Borrowers who qualify for these public programs therefore need to understand how withdrawal decisions will affect their eligibility. HECMs require counseling prior to taking out a loan (see also Reverse Mortgages).

Policymakers have at times proposed incentives to promote the use of reverse mortgages A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… to fund other financial services products. For example, one proposal would waive the up-front mortgage insurance premium for federally insured reverse mortgages A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… when all the loan proceeds are used to buy LTCI. In general, taking out a loan to pay for insurance is risky. And fully depleting home equity to pay for expensive private LTCI is especially risky for older adults. For many people, home equity is their main of accumulated wealth. Depleting home equity to pay for insurance could even result in loss of the home to foreclosure. Borrowers may not have other means of paying for required property taxes, homeowners’ association dues, insurance, and home maintenance.

REVERSE MORTGAGES: Policy

REVERSE MORTGAGES: Policy

Public benefits eligibility

The status of the home must be fully protected under MedicaidA joint federal/state program that provides health care and LTSS. However, to qualify for Medicaid LTSS, people must have extremely low assets and income, or they have to “spend down” most of their assets. eligibility rules (see also Financial Protections and Choice for Medicaid Participants and Their Families and Reverse Mortgages).

The federal government must refrain from counting reverse mortgage A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… proceeds when determining eligibility for public benefit programs.

Use of federal incentives

The federal government must not encourage the use of reverse mortgages A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… to purchase private long-term care insurance.

If policymakers do offer incentives for using reverse mortgages A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… to pay for long-term services and supportsLTSS encompasses a broad range of assistance with activities of daily living and health-related tasks for people with functional limitations caused by physical or mental impairments. LTSS may be delivered in institutions or in a person’s home or a residential care setting. , they:

  • must be voluntary;
  • should reduce reverse mortgage A loan that allows older homeowners to tap into the equity in their home without having to make monthly mortgage payments while still living there. Homeowners can receive a single lump-sum payment, tap a credit line as needed, or receive a monthly amount. The loan becomes due and must… costs; and
  • should begin only as demonstration programs so that policymakers can evaluate their effectiveness and impact on consumers, as well as ensure appropriate consumer protections.