Going to a Nursing Home? Here's What Happens to Your Reverse Mortgage

As seniors prepare for retirement, many look for reverse mortgages to tap into the equity in their homes. But what happens when circumstances change, such as requiring long-term care in a nursing home? 

Understanding the consequences of moving to a nursing facility while holding a reverse mortgage is critical. It affects your loan terms, payback requirements, and even eligibility for certain services such as Medicaid.

In this article, you will learn how moving to a nursing facility affects your reverse mortgage. We will talk about the legal and financial considerations and practical loan management strategies.

Understanding Reverse Mortgages

Before understanding the effects of moving to a nursing home, let's understand the basics of reverse mortgage loans. 

What is a Reverse Mortgage?

A reverse mortgage is a federally approved loan plan designed for homeowners who are 62 years old or older. With the help of this loan, you can access your home equity without having to sell your property. 

Unlike traditional loans, you do not have to pay the amount monthly. The loan is paid off when the owner sells the house or passes away. This loan is a great way to secure a good lifestyle after retiring. 

Key Features of Reverse Mortgage

• Flexible Disbursement: You can borrow the amount as a lump sum, line of credit, or monthly allowance. 
• Repayment Conditions: The loan becomes due when the owner sells the house, moves out for 12 months or more, or passes away.
• Accrued Interest: The interest fees pile up over the years and are paid off when you move out of the house permanently. 

Eligibility Criteria for Reverse Mortgage 

The criteria for a reverse mortgage loan are: 

• The home must be your primary residence 
• Your age should be 62 years old or above 
• The property should be in your name

If you apply for a jumbo reverse mortgage, the eligibility age can be as low as 55 years old. Since jumbo reverse mortgages are not federally approved, the terms and conditions for these loans are set by the lender. 

Impact of Moving to a Nursing Home

If you move to a nursing home, it might have a significant impact on your reverse mortgage. Lenders require specific occupancy criteria to keep the loan active.

Deed of Trust and Occupancy Requirements

One of the main eligibility requirements of this loan is for the homeowner to live in the house as their primary residence. If you move to a nursing home and stay there for over 12 months, the loan becomes due. 

As a result, you might have to sell your property to pay back the loan. 

Lender's Rights

Lenders put out a set of conditions while signing the loan with you. If they find out that you have moved out of the home for 12 months, they might: 

• Ask for loan repayment 
• Add a penalty 

Specific Scenarios

There are different situations for individuals when moving to a nursing home. Here is what happens in each scenario: 

Situation #1: The Borrower Is Single

If the borrower is single and moves to a nursing home, the loan becomes due after 12 months. Most borrowers sell their house or any other property to pay off the loan. 

Situation #2: There Is a Co-Borrower

If there is a co-borrower, the loan terms remain the same. The loan does not become due till the other owner is living in the house. However, if the co-owner vacates the house for more than 12 months, the loan becomes due. 

Situation #3: The Borrower Is Married

In case the borrower is married, the loan becomes due once the spouse is living in the house. This is because of the special protection applied to married couples. 

Practical Steps and Options While Moving to a Nursing Home 

If you or a relative need to stay at a nursing home while holding a reverse mortgage, here are some practical ways to handle the situation: 

Inform the Lender 

The first thing you need to make sure of is informing the lender. Proper communication will help you avoid penalties. 

Consider Repayment Options 

If you stay in a nursing home for a year, the loan automatically becomes due. Here's how you can repay it: 

• Sell Your Home: You need to sell your property to pay off the loan. 
• Try Refinancing: Go for refinancing so you can pay the reverse mortgage loan with a traditional loan. 
• Use Other Assets: If you have any other asset that can pay off the loan, you can sell that, too. 

Document Your Stay 

If you have to stay in a nursing home temporarily, then you must document the time of your stay. You will need to prove that your stay was less than 12 months to avoid penalties and loan repayment. 

Legal and Financial Considerations

Moving into a nursing home can impact your reverse mortgage, financial situation, and legal situation. It is important to consult a financial expert before making any decision.

Impact on Medicaid

Reverse mortgages might make things more difficult for people who depend on Medicaid to pay for nursing facility costs. Reverse mortgage proceeds may be counted toward Medicaid eligibility's asset and income requirements. 

It is essential to consult with a financial advisor. They can help you learn how moving into a nursing facility impacts Medicaid eligibility and reverse mortgages.

Legal Financial Advice

If you want to better understand the nursing home placement and reverse mortgage rules, you need to consult an elder law specialist. They can offer you management advice on the loan and ensure you don't unintentionally break any rules. 

Heirs' Responsibilities

The loan becomes due when the borrower dies or goes into a nursing home permanently. Heirs can choose to let the lender foreclose, sell the house, or use other resources to pay off the loan.

Generally, heirs have six months to manage the payback, but lenders offer extensions in some cases.

Protect Your Property and Heirs 

Although health issues are unpredictable, there are preventative steps you can take to safeguard your family's well-being and your property.

Make sure your spouse is a co-borrower if you have to take out a reverse mortgage. You can also make some changes in your home using the money from the reverse mortgage to make your home more liveable for older people. 

Prefer at-home nursing to avoid any penalties. However, if you have no other option than moving to a nursing home, communicate this clearly with the lender beforehand. 

FAQs

Can a reverse mortgage be used for nursing home expenses?

Yes, the funds from a reverse mortgage can be used to cover long-term care, including nursing home expenses. However, a co-owner must live in the home to continue the loan agreement.

Can you lose your home if you go to a nursing home?

Yes, If you move to a nursing home for more than 12 consecutive months, the reverse mortgage may become due. You will have to pay the loan amount off by selling the house or any other asset. If the loan is not paid off, the lender may foreclose on the property. 

How long can you leave your home if you have a reverse mortgage?

You can leave your home for up to 12 months before the loan becomes due. This includes moving to a nursing facility for temporary care. Always keep in touch with your lender if you plan to be away from home for an extended period.

Can the reverse mortgage lender find out if you went to a nursing home?

Yes, lenders verify whether the borrower still lives in the home as their primary residence from time to time. Hiding these details from the lenders may land you and your property in trouble. It's important to be completely transparent with your lender about any changes to your living situation.

How long do heirs have to pay off a reverse mortgage?

Heirs usually have six months from the date of death or the borrower's permanent placement in a nursing home to repay the loan. To pay it off, they can refinance, sell the house, or find other sources of funds.

Some lenders also provide extensions in special cases. But, it is crucial to communicate with the lender promptly. 

Conclusion 

It is essential to understand how moving into a nursing facility impacts a reverse mortgage for the benefit of both homeowners and their families. You might need to repay the loan immediately by selling off your home or other assets. Always get advice from financial and legal professionals to ensure you handle this situation with care.

At Equity Access Group, we assist you in navigating the process if you have to move to a nursing home holding a reverse mortgage loan. For a free consultation, get in touch with us today! We will help you secure your financial future.