Do you know your long-term care options and why to consider financing with a reverse mortgage?

Your road map for long-term care optionsEducation and planning are the keys to making decisions especially when it involves care while aging. You need to be proactive and know what resources and options are available. With the education and a plan you have more options and can be proactive rather than reactive.

As Forest Gump said, “Life is like a box of chocolates, you never know what you’re gonna get.” This is especially true for aging. I was fortunate to participate in and be considered a trusted advisor at a Minnesota Private Duty Home Care Conference, “Keeping Mom and Dad at Home”. During the conference attendees were encouraged to plan the future as they would a trip, looking at what would they put in their suitcase for the journey of aging and be prepared for what isn’t known to happen along the way.

Conference attendees reviewed what is known about seniors and their families. We looked at what is known about seniors:

  • They underestimate their situations
  • They don’t want to worry or be a burden to their children
  • So seniors don’t tell their children what’s going on
  • They want their families help
  • Families often don’t have the time or the financial means to help
  • Role reversal is uncomfortable
  • They are fearful of nursing homes and moving
  • 93% say they want to stay in their home

Then we looked at what we know about the families of seniors:

  • They want to help
  • They are busy; they are the sandwich generation dealing with their own family, careers, life
  • They see changes but don’t know what they mean or what the warning signs are
  • They may become frustrated with their parents denials
  • Role reversal is uncomfortable
  • It’s generally women who are doing the caregiving.

Consider what’s important to the seniors, what do they want for their journey? It’s important to involve the seniors in the process, the plan, and have them agree with the plan. Discuss their wishes along with what you think is needed. What will provide them their security, independence, dignity and control of their life? Including a mediator and/or trusted advisor is a good idea. If they are resistant to bringing someone else in, discussing their options, or accepting outside help, tell them that they may not need this but that you do.

By being educated and having your plan in place if a crisis occurs means more options will be available along with decreased costs. Being reactive at a time of crisis means less options are available along with greater costs. Emotional and reactive decisions make for poor choices and actions made from regret and guilt.

Part of the education and planning means getting the facts. Unfortunately we have been conditioned to think that seniors will end up in a nursing home; that an assisted living facility provides all the care needed; that home care is short-term and the nursing home and/or assisted living is safer than being at home.

We need to recondition our thinking:Receive home care

  • Seniors can live at home indefinitely
  • Home care can provide a nursing level of care at home
  • Living at home can be safer; you receive a 1 to 1 ratio of care versus 1.5 or more of care per person
  • Living at home is affordable

Let’s compare the costs of some options:

Home Care 1 $1,404/month 3-hour visits, 4 days a week, $27/hour
Home Care 2 $3,276/month 4-hour visits, 7 days a week, $27/hour
Home Care 3 $4,914/month 6-hour visits, 7 days a week, $27/hour
Home Care 4 $8,500/month 24-hour or live in care, one-on-one care, $275/day; includes a live in caregiver and frequent visits from a RN
Assisted Living Rent $3,585/1-bedroom/month Care packages range from $300 – $2,700; additional care would be charged per hour by a home care agency
Assisted Living Rent  & Home Care 1 $4,989/month One bedroom apartment rent plus additional care at 3-hour visits, 4 days a week, $27/hour from home care agency
Assisted Living Rent & Home Care 2 $6,861/month One bedroom apartment rent plus additional care at 4-hour visits, 7 days a week, $27/hour from home care agency
Assisted Living Rent & Home Care 3 $8,499/month One bedroom apartment rent plus additional care at 6-hour visits, 7 days a week, $27/hour from home care agency
Nursing Home $8,000 – $12,000/month Single or double room, level of care and facility amenities

This information and these home care and senior housing figures are a compilation provided by the home care agencies; are approximations and can vary by company and geographic area. Additional home care and senior housing costs were obtained from Genworth Financial, Inc. Cost of Care Survey.

Living in assisted living vs staying at home with a reverse mortgage:

  Selling Staying in home with a Reverse Mortgage
Details: Home Value $200,000; 80 year old borrower   (reverse mortgage funds available will depend on age, generally the older one is more funds available and the program chosen)
Third Party Closing Costs $1,811 $1,811
Less Real Estate Agent/RM Origination Fee & FHA Mortgage Insurance Premium $12,000 (6%) $8,000 (2% origination + 2% FHA MIP)
Net Proceeds $186,119 $102,788 in line of credit; $673 a month tenure-for life of the term of the loan and abiding by the terms of the loan; or term draws structured as needed (based on rates of 2/6/2018; rates change weekly.

Receiving care while remaining at homeNow let’s take the net proceeds and compare living in an Assisted Living to living at home and receiving home care.

Selling and Living in an Assisted Living1 Living at Home using a Reverse Mortgage2
$186,119 ÷ $3,585 (rent only) = $43,020/year or 4 years 4 months

 

 

 

 

 

No remaining equity from home.

No rent or mortgage payment as long as you live in the home as your primary residence

The tenure draw of $673 would cover property charges

Borrower is still responsible for household maintenance, i.e., taxes, insurance, utilities and stay in your home as long as primary residence (i.e., approximately $585/month for a $200,000 home)

May have retained equity depending on how long you stay in the home and the home appreciation.  The loan is non-recourse.

$186,119 ÷ $4,989 (rent and Home Care) = $59, 868/year or 3 years 1 months

No remaining equity from home.

Roof over head; funds to cover home care 1 with term draws from RM = 5 years 4 months3

Additionally it is likely that there would still be retained equity in the home after the 5.3 years.  (Based on 4% appreciation $99,318 in equity would be remaining.)

$186,119 ÷ $6,861 (rent and Home Care 2) = $82,332/year or 2 years 3 months

 

No remaining equity from home.

Roof over head; funds to cover Home Care 2 with term draws from RM = 3 years 4 months3

Additionally it is likely that there would still be retained equity in the home after the 3.33 years.  (Based on 4% appreciation $93,098 in equity would be remaining.)

Then where will you go?

 

 

Some assisted living will accept Medical Assistance or other public programs such as Elderly Waiver, however, your choices may be less.

You can stay in your home and have a roof over your head without rent or mortgage payment even after funds from a reverse mortgage are used.

Medical Assistance or other public programs such as Elderly Waiver or Alternative Care can be received even with a reverse mortgage.  Reverse mortgage does not impact receiving Medicare or Social Security.

1These rates do not take into consideration rent increases (3%-4% annual according to Genworth Financial, Inc.); it’s likely that the number of years the net proceeds would cover will be less.
2With the reverse mortgage there is a growth rate factor that is passed along to the borrower.
3This time can be extended if you are receiving Medical Assistance or other public programs such as Elder Waiver or qualify for Medicare covered Home Care.

You have option to remain at homeYou have choices and can have control over where want to live and the care you receive. You have the right to say, I want to stay in my home (or keep my parents in their home). When educated and with a plan for the journey, life will be easier.

If you’d like to remain at home and have funds for financing your home care, contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.

For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2018 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link: https://wp.me/p4EUZQ-1Ou

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Free Webinar on using a HECM for Purchase for your older home buyer’s

Using Reverse Mortgage to Purchase New HomeThe National Reverse Mortgage Lender Association (NRMLA) is hosting a free webinar on using a reverse mortgage to purchase a new home during the 3rd annual Reverse Mortgage Education Week.  Reverse Mortgage Education Week is dedicated to teaching more people about the benefits of reverse mortgages, how they work, and how loan proceeds can be used to support aging in place.

Typically older homebuyers aged 62 and older, who don’t usually qualify for a conventional mortgage, or want a monthly mortgage payment, would need to pay cash for their new home.  However, there is another option, FHA’s Home Equity Conversion Mortgage (HECM) for purchase, H4P.

Seniors have used the H4P to purchase their dream home, downsize to a home more convenient for their changing health needs and move closer to their children.

Richard and Lou needed a one-level home to eliminate stairs that were getting hard to navigate.  Instead of using conventional financing or paying cash, they used the HECM for Purchase (H4P) Adjustable Rate.  Using cash from the sale and the H4P, they were able to purchase their dream home at a higher value than paying cash would have allowed, have funds for moving expenses and still have funds in a line of credit.

Join us for “Serving the Boomer Market: Guidance for Meeting Older Buyers Needs with HECM for Purchase,” an informational webinar for Realtors and agents who work with older buyers. NRMLA CRMPs Chris Bruser and Christina Harmes, Realtor Scott Degnan, and Scott Owens the General Manager of an active adult community, will explain the process for using a reverse mortgage to purchase a home and provide examples of how buyers, and sellers, can benefit from H4P.

What: Free Webinar: Serving the Boomer Market: Guidance for Meeting Older Buyers’ Needs with HECM for Purchase
When: April 24, 2018, 1:00 – 2:00 PM ET
Registration: http://bit.ly/2GxO56u

For more background on reverse mortgage loans and HECM for Purchase, take a look at these resources and media coverage that shows how the responsible use of a reverse mortgage can enhance a retirement plan:

NRMLA’s  Reverse Mortgage Education Week runs from April 23rd-27th. Check here for the calendar of all webinars.

If you’d like to learn how to utilize a reverse mortgage to purchase a new home, contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.

For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2018 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link: https://wp.me/p4EUZQ-1G5

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

 

How Can A Reverse Mortgage Be Used In One’s Financial Plan?

Using Reverse Mortgage for financial planningIn a perfect world, ideally it is to not have debt of any kind including no mortgages, having a huge retirement portfolio to cover one’s lifestyle and long-term care costs.

However, in the real world, many who have thought they have saved for retirement find that when “life happens” they use those funds quickly. The reverse mortgage is a tool for planning for retirement and long-term care costs as well as more immediate needs. This way they have a plan and funds for when “life happens.”

Financial advisors, planners, insurance agents, wealth managers, estate planners, tax advisors and other financial professionals are realizing the value of using one’s home equity, especially the HECM reverse mortgage, to be part of one’s plan. There is even some discussion on the importance discussing the reverse mortgage as an option for one’s retirement plan by professors of finance at various universities.

Here are some ways a reverse mortgage could be utilized as part of one’s retirement plan.

Protect other investments/Hedge against longevity risk – With the reverse mortgage in place and having cash available, borrowers’ can protect their other investments and retirement portfolios to hedge against longevity risk if those decrease or not have to draw on those, especially in a down market. They can still have cash flow yet save the investments for future use or use those funds for an inheritance.

Eliminate current mortgage payment – By using the reverse mortgage to pay off the current mortgage it allows one to improve their cash flow and have more flexibility for their retirement planning. (Borrowers are still responsible for paying property taxes and hazard insurance.)

Payment flexibility – Payments on the reverse mortgage are not required. However borrowers can choose to make payments in an amount they choose and when they choose. If they use the reverse mortgage to pay off their current mortgage and then continue making payments, the payment will reduce the loan balance and be applied to their line of credit. The funds in the line of credit will grow, meaning they will have funds in the future to re-borrow without refinancing and having to pay closing costs again.

Another big plus with the payment flexibility is if one can’t make a payment because they are no longer working or have a medical expense, they will have better cash flow management.

Use Reverse Mortgage for Long-term careFunds for emergencies and/or long-term care – The HECM Adjustable Rate has a line of credit option with a growth rate. Taking out the reverse mortgage at an earlier age and leaving the line of credit to grow will provide more funds for emergencies and/or later when it’s likely they will need long-term care.

Purchase a new home – Rather than using cash, other retirement funds or a conventional mortgage, the HECM reverse mortgage for purchase (H4P) offers a stronger strategy. See page 19 for more details.

Proceeds are not taxable income – Because it is a loan, the reverse mortgage proceeds are not considered income and therefore not taxable. Therefore one can draw from the line of credit and not have the tax liability unlike some other retirement investments may have.

Continue working but have funds when not able to – Doing the reverse mortgage with a line of credit now could mean more funds available in the future. Borrowers can choose to continue working but when they can’t work anymore, or choose not to, they could have funds to replace their income.

While working they could choose to make payments on their reverse mortgage but then stop making payments when no longer working and take monthly draws or draws as needed to replace their work income.

Social Security claims – With the reverse mortgage in place the proceeds could replace the Social Security income when one spouse passes and they lost the 2nd Social Security income. They could set up receiving monthly payments so their cash flow continues allowing them to maintain their lifestyle.

One could use reverse mortgage proceeds to delay taking Social Security as part of their plan meaning they would increase their monthly Social Security benefits. The CFPB has cautioned about this strategy. Borrowers should consult with their financial advisors to determine if this would be a strategy for them and what is best for their situation.

Available funds even with lower home value – Because the funds are guaranteed to be available based on the home value at the time of closing (FHA insurance benefit), if home values decline (remember 2008?), the reverse mortgage borrower could still have access to more funds than the value of the home and the line of credit will continue to grow even if the home value declines.

With reverse mortgage don't have to rely on childrenNot depend on children – If one needs addition funds for maintaining lifestyle, medical expenses, long-term care, etc, the reverse mortgage could provide funds so they don’t have to rely on their children.

If children want to tap their financial portfolio to help care for their parents, a reverse mortgage on the parents home may be a better plan; providing funds for the parents needs and preserving the child’s portfolio for their own future.

Long-term Care Insurance – One may not qualify for long-term care insurance or afford the premiums so the reverse mortgage line of credit could act as an “insurance” to cover the long-care needs.

If one does qualify for long-term care insurance, the reverse mortgage line of credit could provide funds allowing a higher long-term care insurance deductible and a longer waiting period before drawing from the long-term care insurance.

Payoff spouse in a divorce – The reverse mortgage can be used to pay off a spouse going through a divorce, allowing one spouse to remain in the home.

Use in probate – In the case of the death of a parent, the reverse mortgage could be used to pay off a sibling or siblings so one can remain in the home or purchase the family home. This is beneficial when one child has been living in the home and taking care of the parent(s), and wants to remain in the home.

I am not a financial planner/advisor, accounting advisor/CPA or an attorney. This information is provided as ideas to use for one’s plan. One should consult with their financial, accounting and/or legal advisor on what works for their situation.

If you’d like to improve your retirement cash flow now or for the future, contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.

For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2018 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  https://wp.me/p4EUZQ-1DT

Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.