Whats a Reverse Mortgage?
Its name gives a hint about what a REVERSE MORTGAGE is though many people still do not know about reverse mortgage in Arizona. It works the opposite of a traditional mortgage because the payments don’t come from you—they come to you! Like a conventional mortgage, interest increases the loan balance, but unlike a traditional mortgage, no payments are due, and the reverse mortgage loan does not have to be paid back until the last surviving homeowner dies or sells the home.
Many misconceptions about reverse mortgages come from the first generation of reverse mortgages done several decades ago. Today’s Reverse Mortgages are different: backed by the US Government and insured by the FHA, they are safer and easier to understand than the reverse mortgages of the past.
A reverse mortgage can help you pay for in-home health and extended care, make home modifications, and buy needed long-term care insurance or a hybrid long-term care plan to stay in your home and maintain your independence.
Qualify for Reverse Mortgage in Arizona
To qualify for a Reverse Mortgage in Arizona, you….
- must live in the home for at least 6 months of the year.
- have a maintenance contract for someone to care for the home while you are not living there.
- cannot rent out the home.
- must be on the title of the home.
- must be at least 62.
- must receive a HUD counseling certificate. If you would like help finding a Reverse Mortgage broker to discuss if a Reverse Mortgage is right for you, call me and I will refer you to someone who can help.
Some suggested counselors about Reverse Mortgage in Arizona are:
RM COUNSELING 866-410-6336
BY DESIGN 800-467-0906
Should you consider a Reverse Mortgage as a care funding solution to help pay for extended care in your home?
As an Accredited Investment Fiduciary®, I firmly believe that a Reverse Mortgage is an excellent financial product for some, but for others, not so much.
One good reason to get a Reverse Mortgage would be to pay for extended care in the home.
When you need extended care paying for care can be a challenge for many.
An assisted living community can be expensive; most people do not want to have to leave the home that they’ve lived in for the past 30-plus years, anyway.
In fact, 77% of seniors prefer to stay in their homes, according to a 2021 AARP study, “Home and Community Preferences Survey.”
A Reverse Mortgage may be just the program that can make that happen.
Before looking into Reverse Mortgages as a way to pay for extended care in the home, let’s look at other payor sources first.
The Veterans Administration has an extended care benefit called the Veterans Pension with Aid and Attendance, but you must be both a veteran and a wartime veteran to be eligible.
The other bar from being approved for the VA benefit is your income must exceed your unreimbursed medical expenses to qualify for the Veterans Pension.
Income is often a bar from being able to qualify for extended care benefits through the VA, particularly when trying to stay in your home.
Mortgage payments, utilities, and food are not unreimbursed medical expenses. So it will not reduce your income to be able to qualify.
So for many veterans, the Veterans Pension may not be an option until you move to an assisted living facility.
Arizona Medicaid Long-Term Care System – ALTCS
Arizona Medicaid may be an option income is treated differently than Veterans Pension, making income rarely the reason for being denied.
If married, income is separated into his and her income when qualifying for Arizona Medicaid ALTCS, so the non-applicant spouse’s income doesn’t count and will not bar the spouse needing care from being approved.
Even if the person applying for Arizona Medicaid income is above the cap, they can set up an Income Only Trust and still qualify.
The main reason people are denied benefits under Arizona Medicaid is that they are not medically eligible.
Medical eligibility can be a real Catch 22. It would be best if you had extended care to ensure you take your medications, cook a meal or two, take you to the doctor, and so on.
But you are not at a high enough level of care to qualify for Arizona Medicaid ALTCS benefits.
Long-Term Care Financial Planning
If you are fortunate to have a nest egg but are concerned that you may run out of money, paying for long-term care.
Working with a wealth management company that’s specialty is paying for long-term care may be something that you should consider.
Reverse Mortgages as a way to pay for extended care in the Home
Is a Reverse Mortgage right for you? Maybe, maybe not.
When helping a person find care funding solutions, I often talk about Reverse Mortgages.
Here is an example of an obvious candidate for a Reverse Mortgage.
Deborah is 78; she owns her home valued at about $700,000 due to the recent growth in real estate but does have a mortgage of $80,000, which she pays about $500 a month.
Recently Deborah’s husband died due to complications with Dementia. They spent most of their savings to care for him. She now has less than $20,000 in the bank.
When her husband passed, she lost his retirement income and now lives only on his Social Security of $2,312 per month.
Because she helped to care for her husband, her health deteriorated, and she is beginning to develop Dementia.
She could sell her home and move to an assisted, but she wants to stay in her home as long as possible and live independently.
Because of bills and the mortgage, she only has a few hundred dollars a month to live on, which doesn’t leave any money to pay for extended care.
So here, the Reverse Mortgage is a long-term care funding solution.
Deborah could get about $350,000 after paying off the $80,000 existing mortgage.
A Reverse Mortgage would also eliminate the $ 500-a-month mortgage payment.
She now has plenty of money to pay for a home care agency to come in 4 or five times a week for many years.
Then once her care needs to increase, she can apply for Arizona Medicaid and move to an assisted living community or care home.
Here is another example:
Richard and Mona have been married since Richard returned from the Army after serving two tours in Vietnam.
Richard, now 78, recently fell and broke his hip and, due to the anesthesia used in the surgery, has developed severe memory loss.
Now Richards needs assistance with several of his activities of daily living.
Mona is a petite woman and has trouble helping Richard, so she can only do so much to help.
They both know that help is needed from a home care agency to assist in his care.
The problem is they do not have the extra money to pay for his care.
Richard is potentially eligible for VA Pension Benefits, which could bring up to $2,431 to pay for needed care.
But there is a catch: to get the money to pay for care from the VA, you must be paying for care. The classic “Catch 22,” how do you pay for care so you can qualify for VA Pension benefits if you do not have the money to pay for care.
So Richard and Mono decide to get a reverse mortgage with a line of credit rather than a lump sum payout.
They use the money from the Reverse Mortgage to hire a home care agency to help Mona care for Richard.
Now that they are paying for care with borrowed funds, they can apply for VA Pension benefits and receive the $2,431 per month 2022 VA Pension benefit.
And since they are only taking money as needed for care, Richard can also qualify to Arizona Medicaid and have Mona be a paid caregiver. Now you understand about Reverse Mortgage in Arizona. I am explaining more about it.
When I am helping individuals with various care funding solutions, this is a common scenario. I recommend that they seek the help of a competent Reverse Mortgage broker that can answer all of their questions.
A Reverse Mortgage makes sense to a lot of people; this is just one example where it does.
12 Common Misconceptions About Reverse Mortgages
If you live longer than expected or if your home decreases in value, you’ll have to pay back part of the loan.
The truth: Backed by the US Government and insured by the FHA, today’s reverse mortgages are “non-recourse loans,” which means that only the actual value of the home can be used to repay the loan. The FHA insurance means that the lender is protected against losses if the home value declines or the homeowners live longer than the lender expected. Therefore, if the loan balance does exceed the value of the home, neither the homeowners nor their heirs have to pay back the difference.
Misconception # 2
You have to pay high closing costs.
The truth: There are several options for reverse mortgages under the FHA and FNMA rules and guidelines. The Home Equity Conversion Mortgage (HECM) offers the borrower a choice of having all of the costs of the loan (closing costs) come out up front, or they can choose a little higher interest rate and have the lender pay all or part of the fees. Which plan is best will depend on your particular situation. Your Brokerage USA Approved Agent can help you decide what is best for your situation.
Misconception # 3
You have to pay taxes on the money you get from the loan.
The truth: No tax is due on loan proceeds. A Reverse Mortgage is a loan, so no tax is due on monies received.
There are restrictions on how the money from a Reverse Mortgage can be used.
The truth: The money you get from a Reverse Mortgage can be used for any purpose you wish. It’s your money. What would you do with an extra $50,000, $100,000, $200,000 or more?
You have to own your home “free and clear,” with no outstanding balance on an existing mortgage.
The Truth: If you still owe money on a mortgage or home equity loan, you can use a Reverse Mortgage to pay them off. You do have to have adequate equity to pay off the current mortgage, or you can “buy down” the loan using other financial resources, like a CD or Mutual Fund you own.
Reverse Mortgages are only for people who need to supplement their current retirement income.
The truth: Reverse Mortgages are an excellent financial planning tool that can be used by all types of people. There are Jumbo Reverse Mortgages for multi-million dollar homes that the wealthy can use as part of their estate or legacy planning. You can even use the money from a Reverse Mortgage to fund other investments, such as investing in a business—one that you and your son or daughter might manage together—or you could also use it for a construction project that could be developed then sold at a profit. A Reverse Mortgage can be used to purchase life insurance to pay estate taxes or increase the value of your overall estate. It can be used to buy Long-Term Care insurance so you can guarantee that your estate is passed to your heirs as you wish, without being depleted by end-of-life long-term care bills.
If the Reverse Mortgage loan balance grows above the value of the home because of interest or because the value of your home decreases, the lender can take you home.
The truth: This misconception came from the time when Reverse Mortgages were first introduced in the early 1960s by individual banks and a few local governments. With these first Reverse Mortgages, if the amount of the loan on the Reverse Mortgage outgrew the value of the home then the lender could take possession of the home. This is not the case with today’s Reverse Mortgages.
Today’s Reverse Mortgage loans are FHA-insured. A 2% insurance premium for mortgage insurance is charged on each HECM (Home Equity Conversion Mortgage) loan, which guarantees that you cannot outlive the equity in your home. No matter what the amount of equity is in your home, you can live there as long as you wish; the loan does not have to be paid back until you and your spouse die or sell your home. In addition, your heirs will never owe any money, regardless of what the balance of the loan becomes in the future. Your only obligation is that you live in the home at least 6 months out of the year and keep up the maintenance, homeowners insurance and tax payments on your home.
When you house is sold by you or your heirs, the lender keeps the excess equity
The Truth: The lender never acquires ownership of your home, and you retain full ownership. The title remains in your name, and any equity in your home—less what is owed on the reverse mortgage—belongs to you.
On your death, they house has to be sold and cannot be passed on to your children or other heirs.
The Truth: As with any loan you have, the loan must be paid on your death by your estate. However, whether the loan is paid by the sale of the home or with other proceeds from you estate is up to your heirs or executor. Seniors are encouraged to discuss the idea of a Reverse Mortgage with their families. More often than not, seniors find that their families want them to be happy and free of financial worries in their retirement years and are excited that there is a financial option available that can help.
A reverse mortgage cannot be used to purchase a home.
The Truth: Let’s say you have always wanted to have a home in the mountains, or at the beach. You can have your wish by using the proceeds from your Reverse Mortgage to purchase your second home. However, you cannot use the second home as a rental, and remember also that you must live in your primary home, on which you have the Reverse Mortgage, as least six months of the year.
You have to sell your home and move after a certain time limit.
The Truth: You can live in your home as long as you like. There is no time limit on the loan, regardless of how long you live. You are in complete control.
A Reverse Mortgage means you’ll have to pay taxes on your Social Security income.
Money received from a Reverse Mortgage is technically a loan, and borrowed money is not considered income for the purposes of taxes. It is 100% tax-free and does not cause your social security income to be taxed. However, if you receive additional SSI support, it can be affected if the Reverse Mortgage payments are not structured properly. Discuss your personal situation with your National Senior Approved Advocate to determine the best way to structure the Reverse Mortgage payments.
Common Questions about Reverse Mortgages
Why do Reverse Mortgages have a bad reputation?
In a large way, the bad reputation associated with Reverse Mortgages comes from the past.
Many new regulations have been implemented to protect the homeowner from predatory lenders and bad loan practices.
The high cost of originating a Reverse Mortgage, is one of the major reasons that they have a bad reputation.
In the past, the cost could be as high as 6% of the home’s value. In recent years, this high upfront cost has been reduced dramatically. You can eliminate the origionation fee with a higher loan rate.
But even so, you must pay the upfront mortgage insurance.
Who owns the house in a reserve mortgage?
The title of your home is still in your name.
It just a mortgage that doesn’t have to be repaid until you, and your spouse (if they are listed on the Reverse Mortgage) move from the home or pass away.
Who is responsible for paying back the reverse mortgage?
Generally, when the owners pass, the home is sold. The Reverse Mortgage is repaid with the proceeds of the sale.
The balance of the proceeds not needed to pay back the lender is paid to the homeowner’s heirs.
Is Reverse Mortgage interest Tax-Deductible?
Only the actual interest you pay is deductible. Interest that accrues is not.
This can be a great tax planning tool, in a year that you might want to reduce your taxes owed you could pay down some of the interest on your Reverse Mortgage.
My spouse is under 62. Can we still get a reverse mortgage?
Yes, if one of the owners is over 62, you can still get a Reverse Mortgage.
The loan is calculated based on the youngest owner’s age.
Care Funding Solutions nor myself, Steve Dabbs, do not sell, underwrite or receive any compensation from any company or person if someone I am helping decides to get a reverse mortgage.
Steve Dabbs is not a mortgage broker or lender.
As the saying goes, “I do not have a horse in this race.”
Steve Dabbs is an Accredited Investment Fiduciary, and as a Fiduciary, I believe it is within the scope of my fiduciary duty to discuss Reverse Mortgages with clients.
Whether or not you should consider a Reverse Mortgage is only my opinion and are not to be construed as financial, tax, or legal advice. I hope you liked our article on “reverse mortgage in Arizona”.
Steve Dabbs is a Certified Medicaid Planner™, a VA Accredited Claims, accredited by the Dept. of Veterans Affairs, and an Accredited Investment Fiduciary®. He helps people to apply and qualify for ALTCS Arizona Long-Term Care and VA Aid and Attendance Benefits.
Applying for ALTCS or VA Aid and Attendance benefits can be complicated, but Steve Dabbs can save your Time and Money by reducing delays and claims denials.
He is a Fiduciary, so as a Fiduciary, he must do what is in the best interest of his Clients.