Should you pay off the reverse mortgage and risk losing the money?
- Mother-in-law has dementia and is moving into assisted living
- Long-term care policy only pays $100 a day, but the cost of the home is $315 a day
- Home has a reverse mortgage with accrued interest
- Consulted eldercare lawyer who wants $7,000 to get her qualified for Medicaid
Dear MarketWatch, I need some help navigating elderly care. My 83-year-old mother-in-law has dementia and is moving into assisted living next week. My father-in-law is 89. They have $25,000 in savings, $20,000 in an annuity and a long-term policy that pays just $100 a day. The cost of the home with skilled nursing is $315 a day. Their home has a value of $170,000 and they have a reverse mortgage in both names for $74,000. The principal was $40,000 so they have $34,000 of accrued interest and it’s growing by more than $500 a month. What should I do? Should I pay off the reverse mortgage and risk losing the money if she ends up spending years in a home? They only have enough money to pay seven months because her insurance provider does not start paying until she’s in the home for 90 days. We have consulted an eldercare lawyer and he wants $7,000 to get her qualified for Medicaid. We have no idea what to do. Not only is navigating eldercare and the finances around it complicated, but it can be emotional for you and your whole family. First, examine the stipulations around the reverse mortgage, given that it has already started. Some older folks utilize reverse mortgages for long-term care, and it could be what helps pay the gap until their insurance kicks in. You don’t necessarily have to repay the reverse mortgage right now, nor does your father-in-law. Reverse mortgages must not be repaid until the homeowners move out of the house, or when the last borrower dies, so if your father-in-law intends to live there the rest of his life, using the reverse mortgage could work for him (provided he’s not set on leaving the house and all of its value to anyone for an inheritance, as this would squash that goal). Using home equity can be advantageous for older individuals in a few ways. The first: The income is tax-free. The second: The value of the home is likely to rise over time, as opposed to pulling money out of an investment account, which would dwindle the balance and any potential return opportunities. Your father-in-law needs to be diligent with his money management as there are, of course, pitfalls. Borrowers who run out of home equity can still live in their homes, but they’re responsible for taxes and insurance, according to American Advisors Group, a reverse-mortgage lender. If he is planning to use any home equity to pay his everyday expenses and runs out of money, that would be a problem and could result in the loan going into default. With a reverse mortgage, the loan need not be paid off until the house is sold. If the house is sold for more than the loan balance, the proceeds would pay off the debt and then the seller could keep the difference, according to the Consumer Finance Protection Bureau. If the loan is more than the sale price of the house, and it was sold at its appraised value, the proceeds would be used to pay off the loan, and the mortgage insurance company would pay the rest. Elder care attorneys can help with the ins and outs of Medicaid coverage, as well as assist in estate-planning needs, which your father-in-law, as well as everyone else in the family, should discuss. Find a professional that is qualified, legitimate and who you can trust. But their services can get expensive. The average hourly rate for eldercare law is $440, according to legal software company Clio. But you don’t have to stick with the first person you meet. In a situation like this, even if it feels time sensitive, shop around and interview potential candidates. That will give you a good idea about the fair market rate, as well as what other potential avenues your father-in-law and family have available.
Factuality Level: 3
Factuality Justification: The article provides a personal story about navigating elderly care and offers some general advice on reverse mortgages and Medicaid. However, it lacks depth and comprehensive information on the topic. It includes some relevant details but also contains tangential information and unnecessary background details that do not contribute significantly to the main topic. The advice given is oversimplified and may not be applicable to all situations. Overall, the article lacks in-depth analysis and objective information, making it closer to a rating of 3 in terms of factuality.
Noise Level: 3
Noise Justification: The article provides relevant and detailed information on navigating elderly care and the financial implications. It offers practical advice on managing a reverse mortgage, utilizing home equity, and consulting eldercare lawyers. The information is focused, supported by examples, and offers actionable insights for the reader.
Financial Relevance: Yes
Financial Markets Impacted: The article discusses the financial implications of eldercare and the potential use of a reverse mortgage to pay for long-term care.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: No
Rating Justification: The article focuses on financial planning for eldercare and does not mention any extreme events.
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