Know a Senior Who Wants Security, Independence, Dignity, and Control? A Reverse Mortgage May Be The Answer!
A Reverse Mortgage Helps Their Lifestyle
When Andrew and Harriet, both in their 70’s, went to their bank to inquire about refinancing their current loan, their banker suggested a reverse mortgage and referred them to us at Reverse Mortgages SIDAC. They needed some additional funds for home repairs including a new energy efficient furnace. Anticipating future medical expenses, they liked the idea that with the reverse mortgage they could get money for their immediate needs, eliminate their mortgage payment, and still have funds for their future needs by having a line of credit.
They decided to do a reverse mortgage with the understanding that they would still own their home (as they do with their current mortgage), payments aren’t required, and generally the interest rate is lower than they could qualify for on a regular loan. They understand they continue to be responsible for their taxes, homeowners insurance, and maintenance of the property and don’t have to repay the loan until the home is no longer their primary residence. They liked the idea that even if one of them goes into the nursing home, the other one can stay in the home. Additionally, it was appealing that the funds are tax-free*, Social Security and Medicare are not affected and Medical Assistance and other public benefits can still be received.
A mortgage with special terms for homeowners 62 and older, a reverse mortgage has no income or credit score qualifications and a low interest rate (averaged around 6% over the last 15 years), which offers many advantages for senior homeowners. Allowing access to cash from the equity of the home to use now and pay back when the home is no longer the primary residence of borrower(s), when the home is sold any remaining equity goes to the borrower or their heirs. With the reverse mortgage, if the loan balance is higher than the home can be sold for there is no personal liability to borrowers or their heirs.
“When a friend told me she was doing a reverse mortgage I thought, that sounds really good. I thought, if I do a reverse mortgage, I could do some things to my home, and maybe take a vacation. After everything was explained to me and my children in detail and in words I could understand I did a reverse mortgage. I now am getting new windows and siding and am going on vacation with my daughter,” said Judy in St. Paul.
Happy to Repay Son-In-Law from Reverse Mortgage
A few years ago Patricia had borrowed money from her son-in-law, Brad, to pay off a loan. Then Brad needed the money back for his own purposes. After consulting her family and an attorney, she did the reverse mortgage. She told us she was greatly relieved and the pressure was off her now that she no longer owed Brad money and wasn’t dependent on him. She added as a result of consulting the attorney, “Other good benefits are that I tended to my will being made, my health directives done, and a trust fund set up. All that is done now and I’m prepared for the future.”
The factors used to determine how much is loaned to borrowers include the home value or FHA lending limit ($625,500 through the end of 2014), the age of the borrower (the older one is the more funds they can receive), and an Expected Interest Rate. If one doesn’t have a mortgage on their home they benefit from having more funds available to them. Cash flow will improve when the current mortgage payment is eliminated if one does have a current mortgage on their home.
No matter what the home values may be and no matter if one is only 62, it is still a good time to do a reverse mortgage because the interest rates are so low and one can benefit from the Line of Credit growth rate. When one waits for the home values to be higher or one waits until they are older, there may be more reverse mortgage funds available. However, if one waits to do the reverse mortgage, the interest may be higher and consequently less funds available.
As with a conventional loan, there are traditional closing costs including an origination fee, appraisal, title fees, title insurance and recording fees. With the FHA insured, Home Equity Conversion Mortgage (HECM) borrowers pay a mortgage insurance premium. The fees are often perceived as high but they actually compare to a conventional mortgage with the difference being the FHA Mortgage Insurance Premium. However, in the big picture the reverse mortgage costs less because of the much lower interest rates. The only out of pocket expense is the cost of the appraisal.
“It was a blessing when we heard of reverse mortgages. We were behind in the property taxes and mortgage payments and faced foreclosure. We were really in a mess. The reverse mortgage cleared it all up and has lifted a weight from us that we can live in the house and not worry,” said Gwen and Robert.
A reverse mortgage has allowed thousands of Minnesota seniors to remain in their home with security, independence, dignity and control even during trying times. And if you know a senior who wants to sit back and relax with security, independence, dignity, and control, a reverse mortgage may be their answer.
*consult tax advisor who is familiar with reverse mortgages
© 2009-2014 Beth Paterson https://bethsreversemortgageblog.wordpress.com 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/pxPEm-68
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Beth's Reverse Mortgage Blog 
Beth said “They liked the idea that even if one of them goes into the nursing home, the other one can stay in the home. Additionally, it was appealing that the funds are tax-free, Social Security and Medicare are not affected and Medical Assistance and other public benefits can still be received.”
This statement is misleading. With or withuot a RM, one can stay in the home. If the implication is that the funds from the RM can now pay privately for a nursing home this is a VERY questionable practice. Seniors who get a RM usually have no other assets and would qualify for Medicaid AUTOMATICLY in NH situation. But a more serious and unpresented fact is that the equity in the home is now locked and is quaranteed to be recovered by Medicaid.
Most seniors buying a RM would be better served if FIRST, their situation was reviewed for benefits.
FOr example, Medicare has 2 programs designed to eleminate premium and co-pays called QMB and SLMB. Medicare Part D has a program called “EXTRA HELP” that also pays the premium and can cover the doughnut hole.
Over 80% of all seniors have less than $1500 of monthly income. Yes, the have very tight budgets. But the solution is to see what programs, that are designed for EXACTLY this purpose, can eliminate the costs that are squeezing their budget. THEN, and only then, should a RM be pursued.
Mark John Crews
info@Strategiccareplan.com
Thanks for you comments, Mark. Yes, one can stay in their home with or without a reverse mortgage if a spouse goes into the nursing home. I was referring to, and what these borrowers liked was, the fact that the funds from the reverse mortgage could benefit the community spouse. Because the funds from the reverse mortgage are not considered income one can still receive Medicaid even with the reverse mortgage.
Regarding your statement, “…the funds from the RM can now pay privately for a nursing home this is a VERY questionable practice.” Why is it “a VERY questionable practice” to pay privately for nursing home care? Paying privately gives a senior more control and choices than to let the government decide where they can live. In fact, according to an AARP 2006 Profiles of Long-term Care in MN, 32% of nursing home residents are classified as private-pay (paying out of pocket or through long term care insurance).
Regarding your statement, “But a more serious and unpresented fact is that the equity in the home is now locked and is quaranteed to be recovered by Medicaid.” Mark, if either spouse receives Medicaid the Reverse Mortgage is repaid first then state recovers benefits paid. There is no “guarantee” of a recovery by Medicaid. I have worked with some borrowers who were “grandfathered in” and the state did not have a right to a claim. Reverse mortgage borrowers can benefit from having the funds of a reverse mortgage for their own needs as well as Medicare and/or Medicaid – the RM funds can cover expenses that Medicare and/or Medicaid or even Long Term Care Insurance does not cover. It doesn’t have to be an “either/or” situation. Each situation is different as well as the laws in each state are different.
I don’t agree that “most seniors” would be better served if they first review their benefits before a reverse mortgage. Seniors aren’t necessarily ready to be applying for benefits when they are originating the reverse mortgage, my clients are usually either already on Medicaid or they are years off even applying. In fact, I can only think of a couple of my clients through the years who have been close to applying for benefits at the time they are applying for the reverse mortgage and in those situations it was to their benefit to have the reverse mortgage in place prior to applying for the Medicaid benefits. However, when they are going to be applying for benefits it would be prudent for borrowers to check with the guidelines on Medicaid or other programs in their state because how a borrower takes their reverse mortgage funds can impact whether they would qualify or not.
Additionally in Minnesota we have changes in legislation which could have a negative effect on a senior’s ability to obtain a reverse mortgage by a community spouse following the death of an ill spouse. With this legislation it will benefit the seniors to have the reverse mortgage in place prior to receiving Medicaid and certainly prior to the death of their spouse.
I do believe that seniors should work with an originator who is familiar with how the reverse mortgage works with the Medicaid benefits and will be available even after the loan is closed to assist the borrower when it does come time to apply for benefits.
I also believe in the value of planning and that seniors need to work with an Elder Law attorney who specializes in working with Medicaid and is familiar with reverse mortgages and how they work together and/or when the reverse mortgage can be utilized as a planning tool.
As they look at funding their retirement seniors should explore and be familiar with ALL options available to them INCLUDING the reverse mortgage. Not as a “last resort” as you imply. Please read my blog title “Is Waiting To Do A Reverse Mortgage The Best Decision?” and “But Wait, There’s More… Reverse Mortgage Facts The Media Needs to Know.”