The cost of healthcare in retirement continues to rise. Financial experts estimate the cost of healthcare in retirement for a couple both aged 65 anywhere from $260,000 to $565,142.1
A reverse mortgage can be a source of funds for retirees to cover medical expenses or any other costs during retirement.
A reverse mortgage is a type of home equity loan available to homeowners who are 62 or older. It is a way to get equity out of your home and can be a viable retirement planning tool.
Typically, the homeowner does not have to pay the money back during their lifetime(s), though this may preclude them from passing the home onto their heirs.
There are no restrictions as to how the money can be used. You can use it to supplement retirement income, pay for healthcare costs in retirement, remodel your home or any other purpose of your choosing. The proceeds could be used to purchase long-term care insurance or as a reserve against a future major medical expense.
The proceeds can also be used to pay for the costs associated with assisted living, but if this means that the home that the reverse mortgage was taken out against is no longer your principle residence this could trigger repayment of the loan.
The proceeds can be taken as a lump-sum, a series of monthly payments or as a line of credit to be drawn upon as needed.2
The proceeds from a reverse mortgage generally will not impact your benefits from either Social Security or Medicare, however if you have any questions about this please be sure to contact these agencies.
Reverse mortgages are complex and not right for everyone. A few issues to discuss:
- Will I (and my spouse) be able to remain in the home for the rest of our lives? Generally, yes as long as you “keep current on your property taxes, insurance and home repairs.”3
- What are the fees and closing costs? They vary by lender and can be quite high.
- What are the implications for my heirs? It is common that the home needs to be sold upon the death of the borrower as interest accrues during the life of the loan. The sale proceeds go to pay off any balance due and any excess to your estate.
It is important to do your homework before taking out a reverse mortgage. A qualified financial advisor can help you decide if this is a good idea for you and can also help you select a lender and terms that are right for you.