Reverse Mortgage Challenges When in a Care Facility

A reverse mortgage allows older homeowners to access part of their home equity while continuing to live in the property. Repayment isn’t required until one of three events occurs: the home is sold, the borrower passes away, or the borrower vacates the residence for an extended period. While the first two are straightforward, the third moving out can be confusing. If the borrower enters a care facility and remains away for 12 consecutive months, the loan may become due unless a spouse or co-borrower continues living in the home.

This rule applies specifically to federally insured Home Equity Conversion Mortgages (HECMs), which are the most common reverse mortgage type. For jumbo reverse mortgages or single-purpose reverse mortgage loans, borrowers must carefully review their loan documents to determine how long an absence can trigger repayment. Each product has its own terms, and understanding them is essential for long-term planning.

For single homeowners with a reverse mortgage loan, maintaining the property as their principal residence is critical. If they leave the home for more than 12 consecutive months such as moving into a rehab or long-term care facility the loan is considered mature and must be repaid. Temporary absences, like short-term rehabilitation, don’t trigger repayment as long as the borrower returns within the 12-month window.

However, the rules shift if the borrower is married or has a co-borrower. In those cases, the remaining occupant may be allowed to stay in the home and continue receiving reverse mortgage benefits, depending on their legal status and loan documentation.

Reverse mortgage loans can include more than one borrower, whether they’re spouses or unrelated co-borrowers. If one borrower passes away or enters a care facility for 12 consecutive months, the co-borrower retains full rights to remain in the home and continue receiving reverse mortgage proceeds. The loan only becomes due when the last listed borrower either dies or permanently vacates the property. This structure ensures housing stability and uninterrupted access to home equity for both parties.

Reverse mortgage loans treat spouses in three distinct categories, each with different rights and repayment implications.

Co-borrowing spouse

If both spouses are listed on the reverse mortgage loan, the surviving or remaining spouse can stay in the home and continue receiving reverse mortgage payments. This protection applies regardless of whether the co-borrower is legally married to the primary borrower.

Eligible non-borrowing spouse

If one spouse was under 62 when the reverse mortgage originated, they couldn’t be listed as a co-borrower. However, for federally insured HECM loans issued after August 4, 2014, they may qualify as a non-borrowing spouse. To remain in the home after the borrowing spouse moves out or passes away, they must meet specific conditions:

• The loan must not be in default due to unpaid property taxes or lapsed insurance.
• They must have been legally married to the borrower at the time of loan closing and remain married.
• In cases where legal marriage was prohibited due to gender, the partner must have been in a committed relationship at closing and legally married before the borrower’s death.
• The non-borrowing spouse must have lived in the home when the loan closed and still use it as their primary residence.

Ineligible non-borrowing spouse

Spouses who don’t meet these criteria must vacate the home or negotiate with the lender once the borrowing spouse has been absent for 12 months or longer. At that point, the reverse mortgage becomes due. Other residents, including family members, must either leave or pay off the loan to retain the property.

Many seniors rely on Medicaid to cover nursing home or long-term care costs, since Medicare offers limited support. Medicaid eligibility is based on strict income and asset thresholds, which vary by state. While reverse mortgage disbursements aren’t treated as income, unspent funds may count as assets and affect qualification.

A Medicaid applicant’s primary residence is typically excluded from asset calculations, up to equity limits ranging from $713,000 to $1,071,000 depending on the state. However, if a single reverse mortgage borrower enters a care facility and remains away for 12 months or longer, the home must be sold to repay the loan. Any remaining proceeds become countable assets, potentially disqualifying them from Medicaid until those funds are spent on care.

For married couples, the spouse who remains in the home is considered the “community spouse” and may stay indefinitely. Still, the state may place a lien on the property to recover Medicaid expenses after the institutionalized spouse passes away and the surviving spouse no longer occupies the home.

The most widely used reverse mortgage product known as a Home Equity Conversion Mortgage (HECM) is available exclusively through lenders approved by the Federal Housing Administration (FHA). These federally backed loans offer standardized protections and are regulated by the U.S. Department of Housing and Urban Development (HUD).

In addition to HECMs, some financial institutions offer proprietary reverse mortgage loans. These private options are designed for homeowners with high-value properties and may feature more flexible terms, but they’re not insured by the federal government.

Using Reverse Mortgage Funds for Long-Term Care or Aging-in-Place Upgrades

Reverse mortgage loans offer flexible access to home equity, allowing seniors to use the funds for virtually any expense including nursing home fees, assisted living costs, or in-home care services. Many borrowers also use reverse mortgage proceeds to finance home modifications that support aging in place, such as installing grab bars, stair lifts, or accessible bathrooms. These upgrades can help delay or avoid the need to move into a care facility.

Whether the goal is to cover monthly care costs or invest in home improvements that preserve independence, reverse mortgage funds can be a strategic tool for retirement planning.

A Medicaid spend-down is the process of reducing non-exempt assets to meet Medicaid’s strict eligibility requirements for long-term care coverage. Seniors may need to use savings or other countable resources to pay for approved expenses such as medical bills, home care, or assisted living until their assets fall below the state’s threshold.

However, states enforce a “look-back period,” typically 60 months, during which applicants cannot gift assets or sell property below market value. Violating these rules can result in penalties or delayed eligibility. For homeowners with reverse mortgage loans, any leftover equity after selling the home may count as a non-exempt asset and must be spent down before Medicaid benefits resume.

Reverse mortgage loans typically become due when the final borrower either passes away, sells the property, or vacates the home for 12 consecutive months such as entering a long-term care facility. This can complicate estate planning if the borrower cannot return within that timeframe.

However, co-borrowers listed on the loan retain full occupancy rights and can continue living in the home without triggering repayment. Additionally, a non-borrowing spouse may be allowed to remain in the residence if they meet specific eligibility criteria outlined in the loan agreement, especially for federally insured HECM loans.