Reverse Mortgage Loan Blog

Q: Your articles on reverse mortgages state that they must be repaid if the owner no longer occupies the house as his principal residence. How exactly would that work? Where is the owner supposed to get the funds if he, say, has to move to assisted living or in with a relative?

A: Reverse mortgages are repaid from the sale of the residence when the borrower moves out. If there is money left over — that is, if the house sells for more than what is owed — it goes to the borrower if he is still living or his estate if he has died. If the house sells for less than what is owed, the lender is out the difference.

But, according to attorney Josh Ard of Williamston, Mich., when you no longer use the home as your principal residence is defined much more broadly as it applies to reverse mortgages than it is for tax purposes and legal domicile.

“Leaving one’s home for an assisted living facility or a nursing home for a matter of months is enough to trigger the due-on-sale clause for most reverse mortgage products,” Ard reports. “Thus, a reverse mortgage can be a disaster for an owner if either spouse might have to leave the home within a few years for medical reasons.”

In Michigan, the attorney explains, a person in a nursing home can still claim her home as her residence for property tax purposes, but moving to a nursing home would force her to pay off her reverse mortgage. If Medicaid is required, there is even more trouble. The home value is not counted as an asset but whatever is left after the reverse mortgage is paid off is counted.

“In essence, a reverse mortgage would cause someone who has to apply for Medicaid to lose the entire value of the home shortly,” Ard says. “Not all counselors point this out.”

Found here.

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