I often receive questions about reverse mortgages, particularly on whether they’re a viable solution to afford elder care. The first thing to realize here is that the question implies it’s the senior’s wish to remain at home and age-in-place. If this is true, the reality is it can become very expensive for seniors to maintain the cost of a residence, bring in an appropriate level of care, and supply the home with food and care necessities. Therefore, prior to utilizing a mortgage to accommodate aging-in-place, there should first be an honest discussion on whether remaining home makes the most sense in terms of receiving adequate, sustainable, and affordable care. For example, understanding that the cost to remain home may be $8,000-10,000/month may seem ridiculous to pursue compared to $4,500-7,000/month at the new retirement community in town that offers personalized custodial care, prepared meals, no maintenance worries, and general supervision throughout the day.
So is it a solution if you still want to remain home? Yes, pulling equity out of the home is a way to pay for all the monthly expenses I just mentioned above. The mortgage is also flexible in that it can be pulled out as a lump sum, in periodic installments, or tapped as a line-of-credit. However, the mortgage itself is an added layer of expense dragging down the senior’s overall net worth that could otherwise be used to afford care if the home was simply sold. To go a step further, in a recent article by Michael Kitces it’s pointed out that even the tax-deductibility perks that many rely on to minimize the expense of carrying a mortgage may be lost when done in reverse.
Ultimately, the decision to utilize a reverse mortgage needs to be made carefully on a case-by-case basis.
