Don't Take a Reverse Mortgage to Pay for Long-Term Care Insurance

Daily Herald (Arlington Heights, IL), October 10, 2014 | Go to article overview

Don't Take a Reverse Mortgage to Pay for Long-Term Care Insurance


Many homeowners should reject offers to take a reverse mortgage against their home in order to pay for long-term care insurance.

Q. Several months ago, you wrote about the need for people with a lot of assets to purchase long-term care insurance, which would pay for some of their expenses if they go to a nursing home. I have received an offer in the mail that would let me pay for a long-term policy by taking out a reverse mortgage on my home. Is this is a good idea?

A. Probably not. Most experts agree that buying long-term care insurance is a wise idea for relatively affluent people who need to protect themselves against the cost of a long illness.

The catch is that if you're already old enough to qualify for a reverse mortgage (the minimum age is usually 62), the cost of buying the insurance so late in life might be extraordinarily high. Also, the fact that you need to borrow against your home to buy a policy because you don't have enough cash to pay for it could suggest you don't have enough assets to justify purchasing such insurance in the first place.

"People who need reverse mortgages are very different from the people who need long-term care insurance," said David Certner, director of federal affairs for AARP. "If your assets are so small (that) you have to take out a mortgage loan to buy the insurance, it's probably not right for you."

AARP's terrific Internet site (www.aarp.org) includes lots of valuable information about both long-term care insurance and reverse mortgages. You can also order free copies of the AARP's various booklets by calling the nonprofit group toll-free at (800) 424-3410 or by writing to AARP, 601 E St. NW, Washington, D.C. 20049.

Q. We accepted an offer to sell our house that includes a provision that we provide the buyers with an $8,500 credit at the closing to cover their mortgage points and other closing costs. As it turns out, their closing costs will total only $7,200, and their lender will not permit us to give them the difference in cash. Is this typical? How can we solve this problem?

A. Yes, it's typical for lenders to limit the size of the credit a seller may offer to an amount that will not exceed the buyer's actual closing expenses. Many lenders also say the credit may only be used to cover the buyer's one-time-only "nonrecurring" closing costs, such as loan points and title insurance, rather than for "recurring" costs, like hazard or mortgage insurance, that the buyer will have to pay year after year. …

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