AMES, Iowa -- As younger, potential homebuyers decide whether to take advantage of the government’s extended homebuyer tax credits, many older, long-term homeowners are considering the opposite route — taking out a reverse mortgage on their existing home. It’s an option older Iowans may be thinking about to supplement retirement income or to meet health care or other financial needs.

In particular, reverse mortgages are being suggested as a way to finance long-term care, said Mary Yearns, Iowa State University Extension housing specialist.

“If you expect to stay in your current home for several years, a reverse mortgage may be an appropriate way to pay for long-term care or for improvements to your home so you can continue to live there safely and comfortably as you age,” Yearns said.

“However, reverse mortgages are complicated and costly compared with other types of loans. Be sure you understand the conditions that could make the loan due and payable,” Yearns said.

Long-term care can be expensive. The earlier people start planning for their long-term care needs, the more options they have available, added Cynthia Needles Fletcher, an ISU Extension family resource management specialist. Long-term care includes a variety of services and supports to meet health or personal needs over time. For example, someone who gets assistance at home with everyday activities like bathing, dressing or eating is receiving long-term care. People can receive long-term care while maintaining independence and control over daily living.

A loan against your home

A reverse mortgage is a type of home equity loan that is available to homeowners who are age 62 and older, Yearns explained. “You receive cash against the equity of your home without selling it. You don’t make monthly payments on the loan; instead, the amount you owe on your home increases over time. You also don’t have to repay the loan while you are living in the home. You don’t repay the loan until you sell the home.”

How much someone can borrow is based on his or her age, the value of the home, the type of reverse mortgage and the current interest rate, she said. A variety of reverse mortgages are available with different features, costs and interest rates, and the upfront costs can be significant.

“Before committing to a reverse mortgage, shop around. Compare costs and terms with different lenders, and be sure you understand what you’re getting into,” the ISU Extension housing specialist advised.

“Also consider whether other less-costly alternatives to reverse mortgages would be better for your situation,” she said.

How long will you live in your home?

“Another key factor to consider is how long you’re likely to continue living in your home,” Yearns said. “If you are still able to maintain your home, if your neighborhood is a safe place for you as you age and if there are people nearby who can help you, then it may make sense to remain in your own home long-term.”

But, Yearns continued, “If you think you might need to move soon — to deal with a health problem, for example — then a reverse mortgage isn’t a good fit. Sometimes a conventional home equity loan is a better option than a reverse mortgage, particularly if you are unsure how long you can continue to live at home.”

Own Your Future long-term care planning kits still available

To learn more about using a reverse mortgage to finance long-term care, Iowans can order the Own Your Future long-term care planning kit from the State of Iowa and the U.S. Department of Health and Human Services, Fletcher said.

The kit also contains contact information for reverse mortgage counselors who are approved by the U.S. Department of Housing and Urban Development (HUD), Yearns said. “Reverse mortgage counselors can help you understand how these loans work.”

In addition, the Own Your Future kit provides information and resources on planning for long-term care, financial and legal issues in retirement, and related topics. Medicare, Medicaid and long-term care insurance also are explained.

ISU Extension county offices throughout the state have brochures available that describe the Own Your Future initiative and include a postage-paid card to request the planning kit. Iowans also can order the kit by calling (866) 752-6582 or download it online from http://www.ownyourfutureiowa.gov.

ISU Extension is a partner in Own Your Future, along with the Iowa Insurance Division, Senior Health Insurance Information Program (SHIIP), Iowa Department of Elder Affairs, Department of Administrative Services and the Office of the Governor.

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