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

Related Articles:

Food For Thought to Fulfill Key Roles of Social Workers

Food For Thought For Social Work MonthDuring March we recognize and honor Social Workers for the value they bring to our seniors.

In a variety of roles, with their knowledge and experience in providing resources, social workers assist our seniors. Social Workers are inspiring to improve lives and assisting with problem solving as well as resolving issues that may negatively impact the community. I’d like to offer some food for thought to fulfill their key roles.

Over ninety percent of seniors want to remain in their home. They are comfortable living in the home and community with their memories where they raised their children, know the neighbors, are familiar with the grocery store and the pharmacy. They feel safe and warm in their familiar surroundings. With the home as their identity it gives them comfort being in their long time home. So let’s talk about a couple ways to help fulfill the desires of seniors, improve their lives and help them stay in their home and their community.

Home care services are an option to help seniors who need some assistance to remain in their home. Everything from short time-frames to 24 hour care, including recovery care and respite care or even nursing level of care is available. Home care services can help seniors live at home indefinitely. The one-to-one ratio of care versus 1.5 or more of care per person in a nursing home offers safety.

Their services offer:

  • Companionship and socialization – home care aides can watch TV with them, play cards, do their hobbies, take seniors to the movies or watch them at home, shopping, or even travel with them.
  • Ensuring meals are prepared and eaten even providing someone to talk with during the meal
  • Medication reminders
  • Bathing, housekeeping, running errands
  • Escorting to appointments
  • Anything needed to maintain their life in their home

An assumption is often that one needs to move to assisted living, a nursing home or care center. What is not realized is that rent in assisted living can be $3,000 to $4,000 per month. Additionally home care services are added on to the rent bringing the monthly costs to over $5,000 to $8,000. Nursing home care can run $6,000 to $12,000 a month depending on a single or double room, the facility amenities and level of care.

Wondering how to pay for home care and keep the seniors in their home? A reverse mortgage may be the solution. A reverse mortgage is a home equity loan with special terms for senior homeowners 62 and older. Reverse mortgage facts are:

  • Borrowers own home, no one else does.
  • Seniors can stay in their home as long as it’s their primary residence (in the case of a couple as long as one is still in the home).
  • Borrowers won’t lose their home because of a reverse mortgage if they abide by the terms of the loan – they don’t have to make monthly mortgage payments but do need to pay property taxes, hazard insurance and maintain the property or they may face foreclosure.
  • Funds are generally not considered income for tax purposes.
  • Loan is government insured and guaranteed to be there for them.
  • There is no personal liability to them or their heirs when the loan is repaid, as a non-recourse loan the loan is repaid from the property only.
  • They or their heirs get to keep any remaining equity after the loan is paid off if the home is sold for more than the loan balance.

Consider this…

  • They can access more funds if their mortgage is currently paid off or has a low balance.
  • Their cash flow improves when their current mortgage or lien payment is eliminated.
  • They’ll have extra cash for whatever they need or want!
  • They can still receive Medical Assistance, Elderly Waiver or other public benefits and do a reverse mortgage.

I have often heard how seniors and their families have benefited from using a reverse mortgage to pay for home care. “Once we realized that we could only relieve the stress on us by contracting 24-hour [at home] nursing care for grandma, a reverse mortgage was the only way to do it.” Liz wrote me. Another borrower, Robert, did not want to go to a nursing home, yet he needed long term care. George, Robert’s son, decided they should do a reverse mortgage to pay for the home health care needed to keep Robert at home where he had raised his children. Robert is happy because he is living where he chooses. George is happy the family can fulfill Robert’s wishes of staying in his home and still receive the needed care.

Ruth had ALS and wanted to stay in her home until she passed.  Working with her Social Worker and home care company she did a reverse mortgage. Last week I received a call from her daughter telling me her mom had passed away in her home as she desired.  The reverse mortgage had helped her fulfill the dream of her staying in her home and receiving the 24-hour care she needed.

Giving seniors the freedom to stay in their home fulfills their desires of remaining in their home close to their memories and familiar surroundings. Social Workers offering home care and reverse mortgage options fulfill the Social Workers role of inspiring to improve lives, assisting with problem solving and resolving issues as well as having a positive impact on the community.
Happy Social Work Month to all our social workers!

Originally posted in 2010, Updated 2015
© 2010-2015 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1c5

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.

A Reverse Mortgage Doesn’t Leave An Inheritance. But How Are You Going To Meet Mom’s Needs Today?

A reverse mortgage provides for Mom's needs today“I want to leave an inheritance for my kids.”  “I want my son to get my house.”  “The reverse mortgage will eat up my inheritance.”  “The reverse mortgage isn’t good for the kids.”  “The reverse mortgage should only be done with those who don’t have children.” These are statements that are often seen or heard when a reverse mortgage is mentioned.  My question is, do you, the children, have the money needed to cover the costs of mom or dad’s needs today if they don’t have the money and don’t do a reverse mortgage?

Let me share a story.  As I always do, I have a discussion on the needs and desires of one who is considering a Home Equity Conversion Mortgage (HECM) or a reverse mortgage.  In this one particular situation, the woman, Chris, was living off her Social Security income of about $600 a month.  She needed new teeth, new glasses, some new clothes, and her home needed some repairs.  She loved going to plays but couldn’t even afford the community plays for $5 to $10.  Doing a reverse mortgage would help Chris “live with more” so she completed the application.

A few days later she called to say she decided not to proceed. When I inquired why the change, she replied that her son didn’t want her to do it.  After some exploratory questions as to why, she said her son wanted her home after she had passed away so he could rent it out and make money.

How outrageous is this?  Was she really going to do without all the things she needed as basic necessities not to mention just being able to have some money for a few extra things to enjoy life while she’s still alive just so her son could make money off her house after she passed away?

While I was astounded by this response, I kept my tongue in check and calmly asked her if her son was going to provide the money she needed now or was she going to do without the glasses, teeth, clothes, and home repairs so her son could benefit after she passed away.  She said, “Of course not, he doesn’t have the money to help me.”

Is living from Social Security check to Social Security check just to get by and maybe doing without some of the things in life that give dignity such as having lunch with friends, getting one’s hair done, or having cable TV really a good option over a reverse mortgage?  Why should one be more concerned about leaving an inheritance than having their independence and control of their life and living comfortably?  Why do children think they deserve an inheritance rather than their parents being able to live comfortably, have security, independence, dignity and control of their lives?  Aren’t these the same things every one of us wants?  Why would you deny your parents?

Even if one’s children are able to help their parents today, do their parents really want to be dependent on their children?  What happens if “life happens” to their children, they lose their job, get sick, have to come up with money to pay for their kid’s college, etc. and they no longer have the funds to help their parents?  This can impact everyone!

What if one needs home care or has medical expenses?  Why should one do without needed care so they can leave an inheritance?  Why do children think they should receive an inheritance over their parents having the dignity of paying for their own care and expenses?

If one moves into senior housing, whether independent living, assisted living or skilled care, does one really think there will be funds left to leave for an inheritance?  Or will the children have to help pay for the senior housing?  Whether private pay or services paid by Medicaid or other government funds, there may not be an inheritance.

And whose money is it anyway?  Who should benefit from the use of funds or assets that the senior worked so hard for?  Shouldn’t the money and assets be used for whatever one’s parents need or want?

Many seniors say, “My kids are doing better than I am.”  This is often the case but even if this isn’t the case, why should one be concerned about leaving money after their gone?

A reverse mortgage is a loan against one’s home to allow seniors 62 and older to remain in their home with security, independence, dignity and control.  The most common, and only one available in Minnesota, is the FHA insured HECM.  The reverse mortgage offers many benefits including no monthly mortgage payment requirements, and no income or credit requirements to qualify for a low interest rate.  The loan is due and payable when the home is no longer the primary residence of the borrower(s) or on the 150th birthday of the youngest borrower.  As a non-recourse loan, if the loan balance is higher than what the home can be sold for at fair market value, the borrower or their estate are not responsible for the difference.  And the opposite is true too, if the loan balance is lower than what the home is sold for, the borrower or their estate receives the difference.

The borrower remains the owner of the home with the title staying in the name of the borrower(s).  In addition, the reverse mortgage has many protections, likely more than any other financial product or service.  To learn what these are read, “You Need To Know Reverse Mortgage Borrowers Are Highly Protected.”

A reverse mortgage provides security, independence, dignity and controlI’m happy to say Chris did proceed with her reverse mortgage.  And for the last six years I’ve received at least one call, sometimes a couple calls, a year saying she’s so relieved to have the money to meet her needs.  Besides the initial needs, she has had funds to fix her car when it needed some repairs, to cover some medical expenses and she had funds to take a trip to attend a family wedding.  And yes, she’s even enjoying the community plays every now and then.

Once Chris passes away her son will have the opportunity to keep the home by obtaining a conventional mortgage to pay off the reverse mortgage.  If he’s renting the property out, the rent payments he will be receiving will cover the mortgage payment – he could still make money if priced accordingly.  In the meantime Chris is remaining in her home with the security, independence, dignity and control she deserves and enjoying her life.

So what do you think is better?  Doing without today just so a child can have an inheritance or the senior being able to fulfill one’s needs and wants while they are alive?

© 2012 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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

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.

Eleven Statements To Listen For Indicating A Reverse Mortgage May Be Beneficial

Enjoying remaining at home with a HECM reverse mortgageWhen you hear any of these eleven statements from a homeowner 62 and older a reverse mortgage may benefit them.  They should be encouraged to get the facts to see if a reverse mortgage is right for their situation.

  • “I want to stay in my home.”
  • “My only option is to move.”
  • “I can’t afford home health care.”
  • “We can’t afford a mortgage payment.”
  • “We can’t afford to make home repairs or modifications.”
  • “Not enough money at the end of the Social Security check.”
  • “I need help with keeping up my home with housekeeping or yard work.”
  • “I’m downsizing and moving.” or “I’m moving closer to my children.”
  • They need funds for retirement planning.
  • They can’t afford the little extras that would help them maintain and enjoy their life.
  • They want Security, Independence, Dignity, and Control which they are missing in some way now.

A reverse mortgage is a mortgage with special terms for seniors 62 and older.  Some of the differences include income and credit scores are not considered to qualify for the interest rate and monthly mortgage payments are not required.  Rather than a 15 or 30 year term, the loan is due and payable when the home is no longer the primary residence of the borrowers or on the 150th birthday of the youngest borrower.  In addition, the reverse mortgage is non-recourse, which means if the loan balance is higher than what the home can be sold for there is no personal liability to the borrower or their heirs.  If the home is sold for more than the loan balance, the borrower or their heirs receive the difference.  The most common and only reverse mortgage available in Minnesota is the FHA HUD insured Home Equity Conversion Mortgage or HECM.

Options are available!  When you hear any of the above statements remember a reverse mortgage may be the option that is the most beneficial to their situation.

© 2012 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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

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.

How Do We Determine If A Reverse Mortgage Is Not Right For Us?

MN Seniors Determined Reverse Is Right For Them“Do you have any info on how to tell if a reverse mortgage is not right for you?” is a question I recently received from Stan Cohen of www.MaturityMatters.net.  He stated that one of the big issues he hears about is that seniors are afraid that a reverse mortgage may not be right for them.  He also stated that he has heard seniors are afraid of outliving their money and being forced from their homes.  Additionally he expressed the concerns of being hospital/nursing home bound for over a year and negating their contracts.

Following is my reply to help seniors and their families have a better understanding and overcome their fears of reverse mortgages.

There are a lot of misconceptions about reverse mortgages and I believe this puts the fear into the seniors and their families.

A reverse mortgage is a mortgage just like any mortgage but with special terms for seniors 62 and older. With a reverse mortgage there are no income or credit score qualifications and no monthly mortgage payments.  Another difference from a conventional mortgage is the reverse mortgage loan is not due and payable until the home is no longer the primary residence of the borrower or on their 150th birthday.

One can go into the nursing home temporarily as long as the home remains their primary residence and they are returning to the home within a year.

Once a reverse mortgage is in place, even if they use all their funds from the reverse mortgage the borrowers can stay in their home.  The advantage is they don’t have mortgage payments to make which takes away the risk of foreclosure from not making a monthly mortgage payment.

Just like a conventional mortgage, borrowers are responsible for keeping insurance on the property, paying property taxes and maintaining the home.  As long as they abide by the terms of the loan they are not forced from their home.

Some of my blog posts may help you clarify the facts:

“The Misconceptions of Reverse Mortgages Abound… What Do You Know?”

“Beware of Reverse Mortgage Misconceptions – The Fact is Reverse Mortgage Lenders Do NOT Own The Home!”

“Why Are You So Afraid of Reverse Mortgages?

There isn’t a check list to say when one should or shouldn’t do a reverse mortgage or whether it’s right or not right for them.  It’s very personal for everyone.

The first evaluation should be to determine if they qualify, i.e. they are old enough, the property qualifies, and they have enough equity to pay off any current mortgage(s).

Generally we say the reverse mortgage is not right for one who plans on moving in a short period of time.  However I have seen where it has been a huge benefit to seniors and their families even when the home is sold in a short period of time after the closing.  One needs to be educated on the pros and cons of the reverse mortgage for their situation and then decide if it will meet their needs.

Reverse Mortgage Originator Taking Time To Explain DocumentsOne should work with a reverse mortgage originator who will take time to meet with the borrower and discuss their needs, goals, and situation and help them evaluate whether the reverse mortgage might benefit them or whether another option may better suit their situation.  I’ve provided a checklist of questions to ask an originator in my blog article “Don’t Let Fear Keep You From A Reverse Mortgage… But Know What To Look For In A Lender.”   On our Reverse Mortgages SIDAC website I have an updated version of this check list at http://rmsidac.com/WhattoConsiderWhenTalkingtoLenders.php.

Another article that may help is:  “A Reverse Mortgage…Or? Other Options To Consider.”

I recommend you meet with a local originator rather than working with a lender from another state who just mails you an application package.  You’ll receive more personalized service and information.  We meet with our Minnesota seniors and usually spend two hours with them explaining the details of reverse mortgages and reviewing their situation along with the pros and cons.  This is even before we do an application.  The application is done in person, generally at their home, where we spend another hour and a half to two hours.

Do you go to a plumber if you are having health problems?  No, you go to a doctor.  And you don’t go to a generalist if you have cancer or heart disease, you go to the specialist.  The same is true for a reverse mortgage, go to a reverse mortgage specialist/expert to get the facts and options for one’s situation then decide what will best fit your situation.

Hope this information helps you with your decision to explore a reverse mortgage to determine if it might be right for you.

© 2011 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-p7

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.

A Reverse Mortgage Or…? Other Options To Consider

Senior Needing MoneySeniors need money for a variety of reasons including home repairs or modifications, medical expenses, home care, long term care, taxes, insurance, cash for emergencies, covering mortgage payments, a reliable car, everyday living expenses and even just maintaining their lifestyle.  There are always options to consider and they should be reviewed when making important decisions especially when they are big decisions such as doing a reverse mortgage.

Before looking at some of the other options let’s define a reverse mortgage.  The most common reverse mortgage is the FHA insured Home Equity Conversion Mortgage or HECM offered through HUD.  A jumbo or proprietary/private  reverse mortgage may be available in some states (not available in Minnesota).   A mortgage like a conventional mortgage, a reverse mortgage is a loan against one’s home using the equity now with the home as collateral, however, the reverse mortgage has special terms for those 62 and older.  The amount loaned is based on the age of the borrower, the home value and an expected rate rather than on one’s credit score and income.  The older one is the more funds they can receive.  Just like a conventional mortgage, the homeowner remains on title – the bank does not own the home.

Proceeds from the reverse mortgage can be taken as monthly payments, line of credit, lump sum or a combination of these.  Monthly mortgage payments aren’t required but the loan is due and payable when the home is no longer one’s primary residence.  In the case of a joint tenants as long as one is still in the home as their primary residence the loan is not due until both have left the home as their primary residence.  The due date on the mortgage is the 150th birth date of the youngest borrower.

Another benefit of the reverse mortgage is the fact that it is a non-recourse loan which means there is no personal liability to the borrower or their heirs as long as they are not retaining ownership.  In other words if the loan balance due on one’s home is $250,000 but the home can only be sold for $200,000 the borrowers or their heirs are not required to come up with the difference of the $50,000 as long as they are selling the home and not keeping it in the family.  The opposite also is also a benefit, if the home is sold for more than the loan balance, the borrower or the heirs receive the difference.

Social Security and Medicare are not affected and one can still receive Medicaid or Minnesota’s Medical Assistance as long as the loan proceeds are structured properly.  Because the funds are considered loan proceeds, not income, generally the IRS does not consider the reverse mortgage proceeds as income for tax purposes.  Additionally reverse mortgages are more highly protected than any other financial option available.

Now let’s look at some other options.

  1. State and Community programs for special purposes such as home repairs. There may be some options for low or no interest loans or grants to help seniors or those with low-income have funds for home repairs.  These are often forgiven if you are in the home for a period of time such as 10 years.  This can be a great option if one only needs funds for repairs such as a new roof or repair a bathroom.  Unfortunately the funds for these programs are not as readily available.  Additionally we have found that seniors often have more needs than just home repairs such as they have credit card debt or their Social Security just isn’t enough for meeting their living expenses.
  2. Property tax deferrals. If a senior is having difficulty paying their taxes they may qualify for a property tax deferral.  This is a program that allows property taxes to be deferred or delayed until one sells their home.  This can be a great option if paying taxes is the only issue.  Again, seniors often have a need for more cash than just covering their taxes.
  3. Liquidation of stocks, bonds, 401Ks, and/or other investments. If one has other investments this may be an option which would have no outside approval needed and possible minimal costs to access the funds although there may be penalties and/or tax consequences.  Things to consider is there enough funds to meet the needs of cash?  And is it better to keep those investments until when the value increases (opportunity costs).  When liquidating other investments one may lose the additional financial security.
  4. Is selling a cabin or other property an option?Sale of other assets, for example lake home, RV, boat, real estate property. This may provide extra cash although it may be difficult or time consuming to sell and may not provide enough funds for their needs.  Additionally it may reduce one’s quality of life.
  5. Loans from relatives. Loans from relatives can be an easy transaction to complete, cost effective, i.e. no or low interest and possibly no or low payments.  Is there a relative who will loan the money?  Will the loan be enough to meet one’s  needs?  What happens if the relative’s life changes, i.e. they have medical issues or lose their job and they need money for their own needs – will they require the senior repay the loan and how will this be done?  How will this impact the senior at this point?  What will it do to family relationships?
  6. Relative becomes “bank” and provides loan using home as equity. As noted above, it could be an easy transaction, credit and income may not be considered, and it could be cost effective with a lower interest and low payments.  The above questions and concerns should also be considered when doing this type of transaction.  When doing this type of arrangement I would recommend setting up legal documents to reflect terms of the loan just as with a loan from a professional lender would do.
  7. Sell home to relative or investor and lease or rent back. This can have the same advantages as I noted above.  As pointed out above, I would recommend setting up legal documents to reflect terms of the loan just as with a loan from a professional lender would do.  And again the same concerns that I pointed out above should be considered before entering this type of arrangement.  If it is a lease back/rental situation what happens when the senior can’t make the payments?  Will they be forced to leave their home?  If the relative is doing the loan and their situation changes they may not be able pay the mortgage on the home they may need to sell the home or they could face foreclosure.  This will be a difficult situation for all parties involved and hurt the family relationships.  If the investor’s plans or goals change they may decide to or need to sell and then what happens to the senior?
  8. Selling, moving and renting. This could provide one with access to all equity in the home with no restrictions on the use of the funds.  If one is in a home too large to manage or it is no longer safe for them to be in the home and they can’t afford the home care, this may be the best option.  Things to consider are the costs of selling, how disruptive will the selling and move be since seniors want to stay in their home with familiar surroundings.  Where are they going to live and will the funds be enough to cover the living expenses now and in the future especially if they are renting.  Will their quality of life be reduced if they want to stay in their neighborhood.  Selling and receiving all funds in a lump sum could affect receiving government benefits such as Medical Assistance.Selling and Moving Or A Reverse Mortgage?
  9. Moving in with children or other relatives. Selling and moving in with children or other relatives could provide extra cash as well as support or care by their loved ones.  Things to consider would be if the children have space for their parent(s) to move in with them.  Do the children have time to provide the extra care? Can they afford to give the extra support to their parents?  What will it do to the family relationships?  Seniors don’t want to rely on their children so how will this impact the senior?
  10. Home sharing. Remember the TV show “The Golden Girls”?  Setting up a home sharing situation could be an advantage to increase cash flow as it would reduce expenses by sharing costs.  Another advantage could be having someone else around.  If the senior is selling and moving in with someone else consider the costs of selling and moving, the disruption to their lifestyle, and living with someone else.  If they are the one renting will they have enough funds to cover living expenses in the future.  And how will it impact the receipt of government benefits?
  11. Line of credit or Home Equity Line of Credit (HELOC). A line of credit at a bank will allow one to borrower only what is needed and the initial loan costs may be low.  They will be able to access the cash as the needed it.  At this time it may be difficult to qualify because of their fixed income and/or credit.  They may not qualify for enough funds to meet their needs and even if they have what they need now, will they need an additional loan for future needs?  If they do qualify for a bank line of credit they will have to make payments and defeat the purpose of improved cash flow.  And if life changes they may not be able to make the payments.
  12. Home Equity loan. This may be an option if one can qualify… to qualify one needs to meet the requirements of income, credit and ability to repay the loan which also determine the interest rate.  One may borrow only what is needed, i.e. $30,000 and the loan origination fee is based on the actual amount of the loan.  Historically the interest rate is higher than with a reverse mortgage.  Being payments are required if life changes, one may not be able to make the payments and then may face foreclosure.

The reverse mortgage may be a bigger benefit to a senior than these options but before one makes the final decision, the negatives of the reverse mortgage should also be reviewed.  Generally the negative is there will be less funds available for heirs or when the loan is being repaid because the loan balance is increasing as one is using the funds during the life of the loan and not making payments.

Another negative is the interest is not a deduction until it is paid generally at the time the loan is being paid off.  Although payments can be made on the reverse mortgage and once the FHA Mortgage Insurance Premium is paid payments can be applied to the interest to receive a tax deduction on interest paid.

Closing costs are often perceived as high although they are comparable to a conventional mortgage.  An explanation of the costs can be found at “Do You Understand The Reverse Mortgage Closing Costs?” and a comparison of the costs are at “Reverse Mortgage Closing Costs – High or Mythical?

Reviewed Options But Happy With Reverse Mortgage DecisionDoes the reverse mortgage have more pros over the other options?  Reverse mortgage borrowers who have evaluated their options feel the positives outweigh the negatives because they want to remain in their home, live comfortably, have some “elbow room,” and be independent with financial peace of mind without being burden on their children. Usually the children are doing fine on their own and want their parents to eliminate their financial worries and enjoy their life more fully.

© 2010 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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

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.

My Reverse Mortgage Funds Are Used… Now What?

MN Reverse Mortgage Borrower Can Stay In HomeA question on a recent post was “What happens when a borrower uses all the funds or out lives the money?  This happened to a woman and then she had to pay rent she didn’t have.”

The first part of the question is common and shows the continued need to clarify the many misconceptions and lack of understanding of reverse mortgages.  The second part of the question demonstrates confusion on whether the loan this woman had is a reverse mortgage and/or the misuse of the term “rent.”

A reverse mortgage is a loan, like any other conventional loan or home equity loan, using the equity in one’s home but has special terms for seniors 62 and older.  The amount of the loan is determined by the age of the borrower, the home value or FHA lending limit, the Expected Interest Rate, and program chosen.  Facts to consider:

  • Borrowers own the home, no one else does.
  • Borrowers can stay in their home as long it’s their primary residence.  The due date on the reverse mortgage is the borrower’s 150th birthday.  In the case of a couple, as long as one of the borrowers remains in the home as their primary residence, the loan can stay in place.
  • Borrowers don’t have to make monthly mortgage payments.
  • Borrowers won’t lose their home for the lack of making mortgage payments.
  • Loan proceeds are not subject to income tax, are government insured and guaranteed to be there for you.
  • Borrowers or their estate get to keep any remaining equity after the loan is paid off.
  • As a non-recourse loan there is no personal liability to borrowers or their estate when repaying the loan and borrowers or their estate are not retaining ownership.
  • There are no income or credit qualifications and generally no out of pocket costs other than the appraisal.

With a “true” reverse mortgage, the most common being insured by FHA’s Housing and Urban Development (HUD), the Home Equity Conversion Mortgage, or HECM, the borrowers can remain in their home as long as the home is their primary residence.  Even if one has used all the funds available from the reverse mortgage, the borrowers can stay in the home without having monthly mortgage payments or rent payments.  The loan is guaranteed by FHA.

Borrowers have options on receiving their funds which include monthly payments, line of credit, lump sum or a combination of these.  When paying off current mortgages, a requirement of the loan, in some situations the reverse mortgage proceeds may be used up front in essence using all the funds right away.  This means they can still have the loan without mortgage payments yet improving their cash flow because they don’t have to make mortgage payments.

The borrower’s responsibilities include paying property taxes, keeping home owner’s/hazard insurance on the property as well as maintaining the property.  If a borrower does not pay their taxes and insurance the loan becomes due and payable.

In the question above, to assist borrowers, and not call the loan due, if there are no funds left from the reverse mortgage, the lender may have paid the taxes and insurance and then required the borrower make payments to cover the taxes and insurance.  This is NOT rent but a repayment because in essence the lender is loaning more money beyond the terms of the reverse mortgage loan.

Previously lenders may have paid on the borrowers’ behalf the taxes and insurance such as this but that is about to change, see my blog article regarding this, “Reverse Mortgage Borrowers’ Responsibilities… Or Consequences.

If rent is being required on the “reverse mortgage” as suggested in the question, I’m guessing it is not a reverse mortgage insured by HUD or a proprietary (private) reverse mortgage offered by the FHA lenders which are modeled after the HECM.

It may have been a loan set up by a bank or another lender or through a private person/family member calling it a reverse mortgage but not having the same terms as a true reverse mortgage insured by HUD or by a proprietary program modeled after the HECM that doesn’t require payments and is non-recourse.

Note that the HECM and these proprietary reverse mortgages offer more protections than any other type of financing including require counseling by third-party HUD approved counselors.

Or it may have been someone who purchased the home and set up terms to have the woman stay in the home with a lease back and when funds from the sale ran out she had to pay rent.

I’ve also received the question about someone taking out a “reverse mortgage” and having to make interest payments.  Again this would not be a HECM or proprietary program offered by FHA HUD approved lenders who’s programs don’t require payments and are non-recourse.

If one is having to pay rent or make any other form of mortgage payment it is not a true reverse mortgage.  I suggested to the questioner to review the loan documents to determine what are the actual terms of that loan.Having Reverse Mortgage Documents Explained

This leads to the conclusion that one should work with a lender who specialized in the HUD Home Equity Conversion Mortgage, is familiar with and takes the time to explain the terms of the loan, as well as follows HUD’s requirements including the requirement of the HUD approved counseling.  A list of things to consider when talking with lenders can be found by clicking here.  Borrowers should not sign documents without understanding the terms of the loan and consequences if the terms are not abided by.

© 2010 Beth Paterson, Beth’s Revers Mortgage Blog, 651-762-9648

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

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.

Reverse Mortgages Equal Independence For Seniors

Reverse Mortgage Borrower Has IndependenceAs we look to celebrating the independence of our county let’s also look at how our seniors can celebrate their own independence.  Defined as “sufficient income for comfortable self-support; a competence” at dictionary.com, independence is important to seniors.

When we talk with our clients we hear they want to be able to enjoy their retirement and maintain their lifestyle which includes having their independence.  So how can they do this if they are living off their Social Security and if they have retirement investments but they have dropped in value?

Even though as one ages some help may be needed, they can still maintain their independence.  A reverse mortgage can help provide this independence.  After Edna did her reverse mortgage she said, “Now I have my dignity back and my independence.”

Some instances where the reverse mortgage can help one remain independent include having funds for home repairs, going out to lunch with friends, traveling, visiting family across the country, purchasing a new car, paying medical bills or for medications; paying for help with housework, meal preparation, yard work or transportation, whatever they desire.

Or if one needs more help to remain in their home they would have the funds to pay for the assistance from a home care agency to do so. While some additional assistance may be needed seniors can still have a sense of independence if they have the funds to get the additional help and choose the agency they wish.

Seniors have sometimes used their credit cards to fund their lifestyle or pay their bills, others have used a conventional home equity mortgage or a line of credit.  And others look for additional cash by applying for a conventional home equity mortgage but don’t qualify.

The reverse mortgage can benefit here too.  Interest rates on credit cards are high.  Having the reverse mortgage can reduce their dependence on their credit cards.  They usually don’t qualify for a conventional mortgage with today’s lending requirements especially since their only income is Social Security.  Even if they do qualify or currently have a home equity mortgage or line of credit, they have to make payments which can be difficult on a fixed income or when “life happens.”

Another Minnesota reverse mortgage borrower said, “With a reverse mortgage you begin to have independence anew and you begin to feel more secure.  Being free from monetary anxiety, you have better control over spending your equity.”

A reverse mortgage is a mortgage with special terms for senior home owners 62 and older to allow them to remain in their home.  The loan amount is determined by the appraised home value (or FHA lending limit), the age of the borrower, and an Expected Interest Rate.  Let’s review the facts of reverse mortgages:

  • The title stays in the borrower’s name same as with any mortgage.  The borrower owns the home, no one else does.
  • Income and credit scores are not required for the HUD insured Home Equity Conversion Mortgage or HECM, the most common reverse mortgage.
  • The borrower may be able to stay in their home as long as it’s their primary residence or until their 150th birthday.
  • Lower interest rates than other loans – historically the reverse mortgage interest rates have been lower than conventional loans, lines of credit and credit cards.
  • A borrower won’t lose their home because they can’t make a mortgage payment – they don’t have to make monthly payments.  They are however, as with any loan, responsible for taxes, insurance and maintaining the property and abiding by the terms of the loan agreement.
  • The reverse mortgage funds are generally considered tax-free (although if proceeds are used for certain purposes taxes may apply – consult with a tax advisor).
  • The proceeds are not considered income so Social Security and Medicare are not impacted and one may still be able to receive Medicaid.
  • The HECM is government insured and guaranteed to be available for borrowers.
  • Allows access to more funds without paying additional closing costs – there is a growth rate with the line of credit and monthly payment options with the adjustable interest rate program.
  • There are no out of pocket costs other than the cost of the appraisal.
  • There are no prepayment penalties.
  • Borrowers or their heirs get to keep any remaining equity after the loan is paid off.
  • The loan is non-recourse which means there is no personal liability to the borrower or their estate as long as they are retaining ownership.

Paying off a mortgage on her home, Judy stated, “I truly believe in reverse mortgages, especially for someone like me with a limited income.  I received enough from the reverse mortgage to pay off some other bills and still had a little to put into a “line of credit” account.  Some of the bills I am paying are credit card debts which have a very high interest rate.  It’s a good feeling to be able to do that.  It makes bill paying each month less stressful.”  Now this is senior independence.Celebrating Our Independence

Have a wonderful time celebrating the independence we have in this wonderful country of ours.  And keep in mind that a reverse mortgage equals independence for seniors.

© 2010 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-m7

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.

Food For Thought To Fulfill Key Messages of Social Work Month 2010

Food For Thought For Social Work MonthDuring March we recognize and honor Social Workers for the value they bring to our seniors. In a variety of roles, with their knowledge and experience in providing resources social workers assist our seniors. The National Association of Social Workers provides a list of Key Messages for Social Work Month 2010. These include inspiring to improve lives and assisting with problem solving as well as resolving issues that may negatively impact the community. I’d like to offer some food for thought tying into these messages.

Ninety-three percent of seniors want to remain in their home. They are comfortable living in the home and community with their memories where they raised their children, know the neighbors, are familiar with the grocery store and the pharmacy. They feel safe and warm in their familiar surroundings. With the home as their identity it gives them comfort being in their long time home. So let’s talk about a couple ways to help fulfill the desires of seniors, improve their lives and help them stay in their home and their community.

Read rest of article at Home Instead Senior Care Burnsville or Home Instead Senior Care Hastings

© 2010 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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

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.