Reverse Mortgages for Long-Term Care
For many Minnesota seniors, their home represents their largest asset. Reverse mortgages allow homeowners age 62+ to convert home equity into cash while continuing to live at home, without monthly payments.
How Reverse Mortgages Work
Unlike traditional mortgages where you make payments to lender, with reverse mortgages the lender makes payments to you. No monthly payments required. Loan balance grows over time. Loan repaid when you die, sell, or move out permanently. Most are FHA-insured Home Equity Conversion Mortgages (HECMs) with consumer protections and required counseling.
How Much Can You Borrow?
Amount depends on your age (older borrowers access more, typically 40-75%), home value (higher values mean larger loans, up to $1,149,825 FHA limit in 2024), and interest rates (lower rates mean higher amounts). Example for 62-year-old: $200,000 home might access $100,000; $400,000 home approximately $220,000.
Payment Options
- Lump sum: Entire amount at closing with fixed rate.
- Monthly payments: Tenure (for life as long as you live in home) or term (fixed period).
- Line of credit: Access as needed, unused credit grows over time, most flexible.
- Combination: Mix of lump sum, payments, and credit line.
Using for Long-Term Care
Best for home care: need funds for in-home caregivers, want to age in place, paying for modifications or adult day programs. Stay in your home, access funds as needed, no monthly payments, and reduce cash flow pressure. Can afford more care hours. Important: the loan becomes due if absent from home for more than 12 consecutive months.
Costs
Significant upfront costs: origination fees ($2,500-$6,000, capped at $6,000 for HECMs), mortgage insurance premium (2% upfront, 0.5% annual), closing costs ($1,500-$3,000), and interest rates (currently 5-7%). Total upfront costs typically 2-6% of home value. Example $300,000 home: approximately $13,000 upfront. These can be financed through a loan rather than paid from the pocket.
Advantages for Care
No monthly payments reduce cash flow pressure. Remain in your home and maintain independence. Flexible fund access meets changing needs. A non-recourse loan means you never owe more than the home value. Spouse protection allows the non-borrowing spouse to remain after death. Tax-free proceeds don’t affect Social Security or Medicare premiums.
Disadvantages and Risks
High costs (2-6% upfront). Reduces inheritance for heirs. Loan comes due immediately if you sell, move out over 12 months, die, fail to pay property taxes/insurance, or don’t maintain the property. You must continue paying property taxes and insurance, and maintain your home. May affect Medical Assistance eligibility as proceeds count as assets requiring spend-down.
When Reverse Mortgages Make Sense
Consider if you’re 62+ with significant home equity, plan to age in place, need funds for home care, want to preserve liquid assets, have sufficient income to maintain your home, and understand costs and trade-offs.
When to Avoid
Don’t get a reverse mortgage if you plan to move soon, can’t afford property taxes and insurance, need funds for long-term facility care, want to preserve the home for heirs, have other affordable funding sources, or don’t understand the product.
Minnesota Considerations
Minnesota offers property tax relief programs: Senior Citizens Property Tax Deferral, Homestead Credit Refund, and Property Tax Refund. Even with a reverse mortgage, you must continue paying property taxes. The Twin Cities metro has appreciated significantly, increasing borrowing equity. Minnesota law provides additional consumer protections, including required counseling and the right to cancel within 3 days.
Medical Assistance Planning
If you may need Medical Assistance eventually, reverse mortgage planning requires careful coordination. Proceeds count toward asset limits. Must spend proceeds on exempt items or care costs to qualify. Your home is exempt while living in it, but the loan balance reduces the estate available for recovery. Work with an elder law attorney to time the application, spend proceeds appropriately, and understand the impact of estate recovery.
Getting Professional Guidance
Before getting a reverse mortgage, consult an elder law attorney (Medical Assistance implications, estate impact, contract review), financial advisor (whether it makes financial sense, alternatives comparison, overall financial impact), a HUD-approved counselor (required for HECMs, independent assessment), and a reverse mortgage specialist (only after consulting attorney and advisor).
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About Everbright Legacy Law
Everbright Legacy Law helps Minnesota families evaluate reverse mortgages and home equity strategies for funding long-term care. Our Richfield office serves the Twin Cities with comprehensive elder law services.
