Buyer Beware: The Truth About Reverse Mortgages

A reverse mortgage can be an attractive financial vehicle for older homeowners who wish to tap into the equity of their homes without selling them. However, like any financial product, it comes with its own set of advantages and disadvantages. It is important to understand the full scope of the financial tool before “signing on the dotted line.”

Unlike a traditional mortgage, where the homeowner makes monthly payments to the lender, with a reverse mortgage, the lender makes a single payment or payments to the homeowner. The loan is repaid when the homeowner sells the home, moves out permanently, or passes away. Most reverse mortgages provide protection to the homeowner and heirs that they will never owe more than the home’s value once the loan is called, but it is important to make sure that the terms of the contract include a “non-recourse” clause. There are also supposed to be additional protections for the homeowners including mandatory counseling (which can be done over the phone) but other than signing off that it was done there are no real checks and balances that the counselor did what they were supposed to do, including explaining alternatives to taking out a reverse mortgage.

The loan terms of all reverse mortgages require that the homeowner maintain the property as well as keep up with property taxes and homeowners’ insurance. Failure to make a SINGLE payment on time can result in the start of foreclosure proceedings. This is extremely scary because the very purpose of the reverse mortgage is to allow a person to age in place. The idea that it can be called so easily and quickly, per the terms of the loan contract, can result in homelessness which arguably flies in the face of the government’s original intent in supporting the lending program.

For people on a fixed income, a reverse mortgage can provide access to cash which, ideally, is used to pay for home health care needs to allow people to age in place. However, it is important to understand that there are no restrictions on how the funds are used. In fact, when the homeowner needs the money most it could all be gone as well as the entire equity in the home.

Reverse mortgages can be expensive. They often come with high upfront costs, including mortgage insurance premiums, origination fees and closing costs. These fees can add up and reduce the amount of money the homeowner receives. In addition, interest and FHA mortgage insurance premiums on a reverse mortgage accrue over time, and since no payments are made, the amount owed continue to increase. In fact, over the course of time the amount owed can far exceed any equity left in the home. We have seen instances where a homeowner’s income after exhausting the reverse mortgage funds is well under the total cost of living expenses, property taxes and the homeowners insurance premium. Where they could, the older adults’ family members had to step in and help pay for their needs in order to keep a roof over their loved one’s heads.  

The additional income or resources, depending on how the reverse mortgage is drawn down (lump sum or monthly), can also potentially affect eligibility for need-based entitlement programs such as Medicaid. It’s imperative to understand how a reverse mortgage might impact these benefits before proceeding.

As with any major financial decision, it’s essential to thoroughly understand both the benefits and the risks.

If you or your loved ones are thinking about taking out a reverse mortgage LMR Elder Care is available to consult with you and your trusted financial and legal advisors to help holistically determine if this is an appropriate tool for your long-term care planning needs.

Ageism—Is This a Thing?

Written by: Lisa Bayer, Esq., CCM, CDP

The recent decision by the democratic presidential nominee, Joe Biden, to recuse himself has made me introspect on my own biases and prejudices towards older persons. I think most Americans would agree that the reason that Biden received so much scrutiny from his peers in Congress and democratic constituents throughout the campaign was because of his age, 81, and the age he would have been, 86, at the end of four years. This would have made him the oldest president in U.S. history.

I would argue that he is a victim of ageism and that evaluations of Biden’s presidency should have focused on his policy achievements, governance style, and administrative effectiveness rather than his age alone.  President Biden has continuously “shown up” and the media and his detractors are not relying on any health or evidence-based information to judge his competency and abilities. We are human, after all, and I, like the American public, watched and, admittedly (although I am not proud to admit) judged the president for the wrong reasons.

In light of current events, I feel it is important for myself, as a professional “in the business,” to try to honestly examine my own leanings towards the abilities of older adults and to challenge society’s generalizations. I encourage readers to examine their opinions and views as well.

Whenever I open a new case, I make it a point to never lead with asking the age of the caller or their loved ones. This is not to say that age is unimportant or irrelevant. For example, it is important to know the age of a client facing early dementia symptoms. This is relevant to not just a person’s care needs but also understanding age-related public and private benefits such as commercial health insurance and Social Security/Medicare. The psychosocial supports and needs of a person in their 50’s who are working and still raising their children is not the same as a retired individual with financially dependent adult children.

For my clients in their late 90’s age can be important to appreciate testing and treatments. I often ask families who are considering invasive testing for their loved ones “to what end.” For example, is it reasonable to put a 98-year-old through a colonoscopy? Is the risk/reward of the anesthesia and procedure on a 98-year-old body going to lead to more harm than good?

It is less than 24 hours since President Biden has graciously and patriotically taken himself out of the presidential race. Politics aside, this makes me sad as I know deep down that he did so under pressure because of his age and not because he lacks the ability to serve our country.

Online-only “Placement” Company: Help or Harm?

Written by: Lisa Bayer, Esq., CCM, CDP

Having been a private care manager since 2006, I have spoken with scores of families over the years about the pros and cons of using a residential placement service for their family members who cannot receive the care that they need at home for one reason or another. However, there is one “placement” website that I ask, no I BEG my clients, to think carefully before sharing their information with the online company. For years I have warned clients that there is no personalized attention and that once they share their information it will sent far and wide to any facility that participates with them in the referral fee process. The effect is to make families even more confused and frustrated, and the less savvy, preyed upon.

Despite years of concerns among myself and other seasoned colleagues throughout the country, no one has seemingly taken our warnings seriously. Until now. Finally, the Washington Post caught on and this past weekend published a scathing report: https://www.washingtonpost.com/business/2024/05/16/place-for-mom-assisted-living-referral/

Needless to say, this is causing an uproar in the senior care assisted living world. Facilities depend on the referrals to reach their census. Care managers like myself do rely on “placement services.” But we depend on REAL people and REAL relationships. No one and no thing or care facility can be all things to all people. When an older person or couple decides to explore a residential facility it needs to approached with sensitivity and care. Most importantly, it needs to be deliberate. It is personal. Not just for the care recipient but for the family caregivers who, especially with a loved one with dementia, are often in the position of making these types of decisions for someone else. It’s a big responsibility and it needs to be addressed with careful consideration.

Whenever I’ve looked to purchase or lease a car I approach it methodically. Do I want an SUV or sedan? Electric, gas or hybrid? What is the all-in price (please do not tell me that you forgot to include the tax when I’m about to sign for the car lease)? What is the warranty? And if I need service does the dealership offer loaner cars? And the list goes on. We are talking finances, amenities, and safety for a car. The same goes for choosing a residential care facility but now we are talking about people, not an inanimate object. The stakes are so SO much higher. In New Jersey, residential care could be as high as $16,000 or more per person, per month. Quality of life is paramount. And in the end, the care that a person receives while living there could make the difference between a healthy, meaningful life or tragic death.

This is not to say that I do not work with placement agencies. I very much do! As a care manager it is against our code of conduct and ethics to have a dual financial relationship with another service provider while also working simultaneously as our client’s guide and advocate. I rely often on and work hand in hand with local placement counselors who I know and trust. They have the knowledge and experience of the intricacies of the facilities. For example, the tenure of the staff and the staff ratio is super important. When I see repeated turnover among staff mine, and my trusted placement counselor colleagues’, antennas go up. But an online service does not have access to, or frankly care about, the individual. They want to make their money any way that they can make it—even if it means not sharing or glossing over important information that could make or break the deal with a prospective move-in.

As the sherpa of all things elder care, LMR Elder Care offers a complimentary discovery call for prospective clients who want to learn more about our process and how care management can help you and your loved ones make informed care plans and decisions. Contact us @ https://www.lmreldercare.com/contact