National Care Planning Council

I am a member of the National Care Planning Council. For more information about this organization, please click on the following link: http://www.longtermcarelink.net/ncpc.htm

Long-term Care and Reverse Mortgages

According to recent statistics, 40% of the population over 65 will require some form of long-term healthcare services during their remaining lifetimes. A senior’s average stay in a professional care facility averages 2.5 years and the costs can easily exceed $90,000 annually (Similar illnesses treated in the home, supported by home-healthcare providers, can also average approximately $80,000 annually).

Most Americans recognize the need for a long-term care insurance program to both protect their assets and relieve any potential burden on their families. One major obstacle often voiced by seniors is, “How do I pay for this insurance?” Many seniors no longer have the income necessary to pay the premiums for long-term care coverage and most are not comfortable utilizing their savings for this purpose. While an individual can always ignore the issue and simply rely on the state government to provide such future care, this option may not always be the best one since seniors may be required to spend down their assets to the “poverty level” before qualifying for these government programs.

Traditionally, seniors have had three choices for funding their potential against chronic illness and professional care; self-funding these expenses with personal savings, ultimately utilizing the government programs, or purchasing insurance with existing income. Now there is a fourth choice available – taking advantage of the opportunities offered by reverse mortgage programs.

Reverse mortgages are loan programs specifically designed for senior homeowners - 62+years old. Monies from a reverse mortgage can be withdrawn, tax-free, in three different ways: as a lump-sum, as a line of credit or as a monthly distribution. While all three options will generate a mortgage lien equal to the total available funds, the latter two options provide the homeowner with the benefits of a monetary resource without the liabilities that can be associated with a liquid asset. These loan proceeds can be used to pay the premiums for Long-term Care Insurance – if the borrower qualifies for it. But for others, a reverse mortgage loan may be the only means by which a senior can help protect a significant portion of the equity in his or her home from creditors. The use of trusts, gifts LLC’s, etc., are all worth their weight in gold if established timely, but the funding of these can be an issue.

A reverse mortgage is nothing more than a lien against a primary residence. It does not require the senior homeowner to relinquish title to the property. A reverse mortgage can even be established within revocable trusts and Life Estates. A reverse mortgage loan requires no monthly repayment of interest or principal, although there are no penalties for doing so. If a senior homeowner chooses to repay any portion of the interest accruing against their borrowed funds, the payment of this interest may be deductible (just as any mortgage interest may be). A reverse mortgage loan will be available to a senior homeowner to draw upon for as long as they live in their home. And, in some cases, the lender increases the total amount of the line of credit over time (unlike a traditional Home Equity Line whose credit limit is established at origination). If a senior homeowner stays in the property until they pass away, his or her estate valuation will be reduced by the amount of the debt.

Long-term care insurance is purchased on the basis of the value of total benefits to be provided. Through the Connecticut Long-term Care Partnership program, the amount of Medicaid asset protection is equal to the value of total benefits utilized (i.e., If all of the owner’s $250,000 CT Partnership LTC Policy benefits had been exhausted and then the policy owner filed for continued care under Medicaid, $250,000 of their assets would be exempted from Medicaid claims) . The American Homeownership and Economic Opportunity Act of 2000 (H.R.5640) signed into law on December 27, 2000, supports the use of reverse mortgage proceeds for both long term care and long-term care insurance.

When a reverse mortgage is used fund Long-term Care Insurance, the senior homeowner is using some of the equity in their house to protect the value of their home (and perhaps other assets), so they can feel more confident that their heirs will receive the legacy these seniors worked so long and hard to build.

If you feel you would benefit from a closer look at how a reverse mortgage program can be utilized, please contact me, Stephen Lamoreaux, Reverse Mortgage Specialist – call (203) 595-9610 or (800) 562-6365 x376 or email steve@dmlmortgage.com

The Risks of Serious Illness and Reverse Mortgages

Seniors worked hard all of their lives to create a financial estate from which they had planned to live their retirement years to the fullest and leave a significant legacy to their beneficiaries. Among the primary issues threatening this goal for senior homeowners today are the costs and management of a serious illness and the way it may affect their current lives and future plans. For a married couple, the anxiety surrounding the incapacity of one spouse and their sudden dependence on the other can be disquieting and often overwhelming. For all seniors, the hope of living longer combined with the fear of outliving their finances is becoming a startling reality as expenses continue to rise and savings rates remain historically low. Senior homeowners may face any of the following circumstances regarding the costs of long-term health and medical care should serious illness befall them:

- the possibility of losing their home
- the choice between a nursing home vs. preferred in-home care
- the rapid depletion of their financial security
- the inability to leave a legacy to those they love

A reverse mortgage is the one financial instrument that can help to address many of these uncertainties. Through the withdrawal of some of the equity in a senior homeowner’s primary residence and the proper utilization of those funds, a number of factors are changed which significantly improve the state of affairs regarding the potential risks of a serious illness.

• A reverse mortgage is a lien against the value of a primary residence. Therefore, any obligations based upon the value of assets must subtract this lien. This lowers the current and future value of the estate while enhancing fiscal liquidity.

• Funds from a reverse mortgage can be used to purchase Long-term Care Insurance, thereby addressing the concern about health and medical care costs.

• Funds from a reverse mortgage can be used to supplement monthly income to provide for preferred in-home health or medical care, as well as increases in the cost of living.

• Funds from a reverse mortgage can be used to purchase Life Insurance, thereby assuring a legacy to beneficiaries that may even exceed the value of the original estate.

A reverse mortgage can offer senior homeowners the ability to meet their current needs and strengthen their financial future. When a senior homeowner utilizes these funds to purchase investments that protect their health and well being and enhance the total worth of their estate, the value of a reverse mortgage is truly realized.

If you feel you would benefit from a closer look at how a reverse mortgage could work for you, please contact Stephen V. Lamoreaux, Reverse Mortgage Specialist –

(203) 595-9610 or (800) 562-6365x376 or email steve@dmlmortgage.com

Helping Your Parents Enjoy Their Retirement Years

Many senior homeowners are living in highly valued homes and yet, are finding it harder each year to remain confident in their financial security. Costs for food, taxes, utility bills, medical treatments and prescriptions always seem to be rising, and many seniors, are struggling more and more each year to make ends meet. This is certainly not the retirement life you had hoped for them… and it need not stay that way.

Your parents made an investment that has increased in value far beyond anyone’s expectations – their home. Typically, their goal is to leave this asset to you, their children, and they may even compromise their own lifestyle and well being in an attempt to do so. The reality is that they can regain financial freedom and still leave a substantial legacy, if you help them to understand their options.

There are special lending programs available exclusively to homeowners, age 62 years and older, called reverse mortgages. These programs allow them to tap into a portion of their home value so that they can:

- afford to stay in their community
- maintain their quality of life
- provide for their families’ needs and obligations
- have the ability to strengthen their financial future
- simply rest easier knowing that they have access to a monetary resource if necessary

A reverse mortgage can only be made on a primary residence. Your parents retain full ownership of the property. There are no mandatory monthly repayments for as long as they live in their home (although they can re-pay any portion of the interest or principal at any time with no penalty). If and when they decide to sell, any value in excess of the loan payoff amount belongs to them (In the case of an estate sale, the same is true, with the balance credited to the estate).

The proceeds from a reverse mortgage are tax-free and are not considered income by the IRS (therefore they do not interfere with any entitlement benefits your parents may be receiving). The funds are available as a lump sum, fixed monthly payments, a line-of-credit, or as any combination of these three options. The funds can be utilized for - daily living expenses, home improvements and repairs, property taxes and home-owner’s insurance, prescriptions and medical bills, credit cards payoffs, financial and/or estate plans, long-term care Insurance, funding gifts and trusts, vacations, or anything else they desire.

Additionally, a reverse mortgage is the easiest loan for which to apply because, unlike traditional mortgages or home equity loans, there are no income, asset or credit requirements to qualify.

Reverse mortgage programs enable your parents, as senior homeowners who are house rich, but short cash, to utilize some of the excessive appreciation that has accumulated in their home and still leave plenty of assets to their beneficiaries in the future.

Common Misconceptions About Reverse Mortgages

In spite of recent media coverage regarding the attributes of reverse mortgage programs, there remain many misunderstandings and continued misgivings surrounding these loans specifically designed for senior homeowners. Often I will hear seniors say to me, “I’ve been told to avoid reverse mortgages, but I don’t know why.” Please allow me to provide a summary...

Most common misconceptions –

• The borrower(s) must sign their home over to the bank. -- NO
• The bank will take the home upon death of the borrower(s). -- NO
• The borrower(s) can withdraw most or all of the equity out of their home. -- NO
• Closing costs are extremely high. -- NO
• Interest rates are high and are charged on the total available loan amount. -- NO
• Money received is reportable and can affect the homeowners' current government benefits. -- NO

Reverse mortgage realities –

• The title to the property does not change. A reverse mortgage is just a lien, the same as a traditional mortgage or home equity line. The borrower retains full disposition rights to their property.At the time of the borrower(s) death, the property will enter probate and the beneficiaries can either refinance the balance of the reverse mortgage and keep the home, or sell the property, whereupon the loan is repaid and the remaining equity belongs to the estate.

• The borrower(s) cannot withdraw all of the equity in their home. The lender determines the loan amount. The older the borrower(s), the larger the loan amount that will be made available. Seniors can receive the proceeds as a lump sum, a line of credit, a monthly payment, or any combination of these options.

• For some reverse mortgage programs, the closing costs are significant, but still far less than one year of typical appreciation on a $300,000 home. Some programs require a one-time mortgage insurance premium payment that protects the homeowner and the lender. There are some private reverse mortgage programs that have little or no up-front closing costs. All closing costs (if any) are withdrawn from the gross loan amount, so that the borrower(s) need not bring a check to the closing.

• Interest rates are low -- currently starting around 3.90% (11/2004) on some programs. All reverse mortgage programs are adjustable rate loans. All have lifetime interest rate caps. Interest is only charged on the borrowed loan amount – not the total loan available.

• Proceeds from a reverse mortgage are not income and therefore do not affect the benefits from Social Security, Medicare and are not generally subject to attachment by Medicaid.