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Change is Coming...Preparation and Mindset With Wise Use of Reverse Mortgages Are the Keys

September 1st, 2010 4:57 PM by Korene L Clopine-Seaman

Change is Coming

Preparation and Mindset With Wise Use of

Reverse Mortgages Are the Keys

We all know the one thing that is certain in life is change. Change is coming in a big way to America in general and to senior citizens and the baby boomers in particular. How they prepare and how they handle the changes tells a lot about them and will determine their future, life style and life expectancy.

Care Costs Bigger Percentage of Average American Home

Obamacare will take $500 BILLION from Medicare, which is already in financial trouble. Rising costs for long-term care, coupled with lower home values, has resulted in a greater bite into a senior's home today than it did five years ago, an insurance agency that specializes in long-term care products said. Rising costs for long-term care, coupled with lower home values, has resulted in a greater bite into a senior's home today than it did five years ago, an insurance agency that specializes in long-term care products said.

According to the chairman of LTC Financial Partners, when the company first translated long term care costs into square feet of real estate in July 2005, the national average cost for a private room in a nursing home was equivalent to the value of two square feet per day in an average American home.

In 2010, that ratio has grown to nearly three square feet per day. The calculation uses figures from the National Association of Realtors that give the median price for U.S. homes at $183,700 and U.S. Census Bureau data which gives the average home size at 2,422 square feet. Therefore the average per square foot is just under $76, while the cost of a private room in a nursing home is $219 per day.

Since these are just averages, some homes have a bigger LTC bite than others because they are worth less.

Gott said "If you don't qualify for Medicaid and if you are not protected by long-term care insurance, you need to realize that for every day you are incapacitated or a family member is, there goes another sizeable chunk of your home."

While long-term care insurance is one answer to the problem of care costs eating up home equity, another answer is a reverse mortgage to help pay for long-term care.

A "reverse" mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways:

  • all at once, in a single lump sum of cash;
  • as a regular monthly cash advance;
  • as a "credit line" account that lets you decide when and how much of your available cash is paid to you; or
  • as a combination of these payment methods.

No matter how this loan is paid out to you, you typically don't have to pay anything back until you sell your home, permanently move out of your home, or you die. To be eligible for most reverse mortgages, you must be 62 years of age or older.

Benefits of a Reverse Mortgage

  • No payments are required as long as you live in your home except you must pay the taxes, pay for the iproperty and casualty insurance, maintain the home in good repair, and pay for the Home Owners Association (HOA) fees, if there are any.
  • Income received from your Reverse Mortgage is usually tax-exempt (consult your tax advisor) and does not affect regular Social Security or Medicare benefits, but may affect eligibility for other types of government assistance.
  • You can use the Reverse Mortgage to purchase a home with the appropriate downpayment and never make another mortgage payment as long as you live in that home.
  • You retain ownership of your home
  • You can use the proceeds to pay off an existing mortgage and eliminate your monthly mortgage payments.
  • Reverse Mortgages are insured by the Federal Housing Authority (FHA) or backed by Fannie Mae.
  • Reverse Mortgages provide you with a source of income that can be used to improve your standard of living and maintain your independence.

What is a Reverse Mortgage?

A Reverse Mortgage is a special type of loan for people 62 or older. The home serves as collateral, as in any mortgage, but thanks to government-mandated provisions, the homeownership is protected.

The key characteristics of a Reverse Mortgage are:


How does a Reverse Mortgage protect you and your heirs?

The older we get, the less risk we should take; the better we should protect our health, family, home and financial situation. Protection is one of the key elements of the Reverse Mortgage.

Your home is protected. With a Reverse Mortgage you remain the owner and you keep title to your home.

The Reverse Mortgage has been designed to allow homeowners to stay in the home, own the home, and still enjoy the assets of the home while living in it. The protection of homeownership is the highest priority of the Reverse Mortgage. You keep title to the home. You are the owner as long as you or your spouse lives in the home.

You never have to make monthly payments to the lender.

No payments are due as long as you or your spouse live in the house. The Reverse Mortgage, with accrued interest, becomes due when neither you nor your spouse live in the home anymore.

You never owe more than the value of the home.

Should the outstanding amount of your Reverse Mortgage exceed the value of your home, the Federal Government’s insurance will kick in and cover the difference – you never owe more than the value of your home.

You enjoy the full appreciation of the home.

When you pay back the Reverse Mortgage, your equity is the difference between the value of the home and the accrued balance of the Reverse Mortgage. Thus, if the value of your home appreciates, you enjoy all the appreciation.

How does a Reverse Mortgage help you with cash?

“You can be young without money, but you cannot be old without it.” --Tennessee Williams

Three ways to get cash from a Reverse Mortgage.

You decide how you want to receive cash from a Reverse Mortgage:

As a lump sum upfront

A lump sum upfront is often used to pay off an existing mortgage, or expensive credit card debt or unexpected bills.

As monthly income

Supplement your pension or social security income.

As a line of credit

A line of credit is a financial safety net; it provides instant access to cash whenever you need it.

You are free to do whatever you want with the cash from a Reverse Mortgage.

It is your money; there are no restrictions on what you do with the cash from the Reverse Mortgage. Use it for your health and well-being, your travels, your grandchildren…. It's your choice.

All proceeds that you receive through a Reverse Mortgage are tax free.

The proceeds you receive from a Reverse Mortgage are not taxed and will not move you into a higher tax bracket.

Your social security payments continue. They are not impacted by a Reverse Mortgage.

Legally you are tapping equity and not receiving income, so social security payments are not affected. However, Medicaid or other complementary programs may be affected in certain situations. As always, consult a specialist.

Do You Qualify for a Reverse Mortgage?

Reverse Mortgages are quite easy to qualify for.

Minimum age 62

The youngest of the borrowers has to be at least 62 years old.

Home Owner

You must own a home or purchase a home  to qualify for a Reverse Mortgage. If there is a mortgage or other lien against the home, this has to be paid back with the Reverse Mortgage. The home may also require some repairs. In most situations, these may be paid from the Reverse Mortgage.

Bad credit accepted. No income requirements

There is no income requirement, nor is the Reverse Mortgage affected by your credit rating. However if you ever defaulted on a federal loan, this may disqualify you from a Reverse Mortgage.

You should definitely talk with an experienced specialist. There may be other causes that may disqualify you or may make the Reverse Mortgage an unattractive solution.

You can fill out our Online Application for a free quote and one of our FHA Reverse Mortgage specialist will contact you within 24 hours. We will give you professional advice and explain the pros and cons of your purchase transaction. We are here to assist you on all your questions about FHA insured Loans and properly educate you, for you to make the best possible financial decision.

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Posted by Korene L Clopine-Seaman on September 1st, 2010 4:57 PM