We used a reverse mortgage to help MIL (a widow with no dependents) improve her quality of life. She was living in a nice, paid-for condo, driving a reliable automobile and had nice furniture, clothes and personal items. But, when she ran out of savings, she was cash strained trying to live on only a modest SS income. We wanted her to spend more on the day to day quality of her life.
While MIL's 4 children have a good relationship, they are dispersed geographically and march to their own drummers. We all agreed it was important to not have one of them in a position to either benefit or be deprived due to assuming any financial role with MIL's situation. That is, peace in the family was given a high place when we listed goals while developing a plan.
After significant research, we assisted MIL in obtaining a reverse mortgage which gave her a line of credit to draw from as desired and guaranteed she could stay in the condo as long as she could pay the taxes, HOA fee's and utilities even if she spent down the line of credit over the following years. (She was in her early 80's at the time.)
The reverse mortgage was more expensive than some other alternatives we looked at such as having one of us buy the condo and lease it back to her or getting a heloc. But the reverse mortgage was very "arms length." None of her children was holding the title. No one had to monitor whether heloc payments were being made, etc. No siblings were either getting a financial advantage or disadvantage depending on the current market value of the condo, etc.
The reverse mortgage was established around 2006 or 2007 while the value of the condo was very high. In 2013, when she entered a nursing home, the condo had dropped in value significantly. The balance of the line of credit was greater than the then estimated selling price of the condo. So, in order to enter a top notch NH as private pay, she (with help) cashed out the balance of the line of credit and relinquished ownership to the mortgage company. The way things worked out with the housing market, the balance of the lineof credit at that time was more than the condo would have sold for despite the fact she had already withdrawn from the line of credit for several years. Instead of being upside-down in a mortgage, she was protected from the real estate crash by the residual value of the line of credit from the reverse mortgage. That is, the line of credit was not diminished by the condo dropping in value.
After about two years in the NH, funds ran out and she was put on Medicaid. Because she was private pay for a significant period of time, we were able to get her into a NH where the vast majority of clients are private pay and no one is accepted who doesn't start as private pay. In Illinois, this is a great advantage since the state is a very, very slow and low Medicaid payer. Many NH's that will take you as Medicaid from the get-go, or Medicaid after only a short time as private pay, often have "issues" and are to be avoided.
A reverse mortgage may or may not be a good move for your situation. Do your homework and understand all the alternatives and how the different solutions apply to your individual circumstances. Try to avoid listening to generalities and remember than any one example may not work out the same way for you.
