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Is Money Important to You?

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Contributed by: Karen Morrow on 3/20/2007

The National Council on the Aging shows that reverse mortgages can be used by millions of Americans to pay for long-term care expenses at home, granting many to remain independent and in their homes longer.

Reverse Mortgages or Home Equity Conversion Mortgages are loans that allow homeowners aged 62 and over to convert home equity into cash while living at home for as long as they wish. Borrowers continue to own their homes, and do not need to make any monthly payments. Instead, they can choose to receive their money as a lump sum, line of credit, or as monthly payments (for up to life). The loan comes due only when the last borrower moves out, dies, or sells the home.

The "Use Your Home to Stay at Home: Expanding the Use of Reverse Mortgages to Pay for Long Term Care" funded by the Centers for Medicare and Medicaid Services and the Robert Wood Johnson Foundation, also shows how reverse mortgages can alleviate financial pressure not only for individuals and families, but also for state Medicaid programs and the federal government. Increasing the market for reverse mortgages could save Medicaid $3.3 billion (with a four percent take up rate) annually by 2010.

"Many seniors and their families can benefit from effective ways to pay for the long term care services they need, inthe setting they prefer," said Dr. mark McClellan, administrator of the Centers for Medicare & Medicaid services. "NCOA'S report shows that reverse mortgages can provide real help in financing long term care needs."

The amount that can be borrowed is based on a HUD formula that factors in the age of the youngest homeowner, the interest rate, appraised value, and the county where the property is located. The reverse mortgage customer always retains ownership and lives in their home. Cash advances can be used for any purpose, and loan proceeds are not considered "income" and do not affect Social Security orMedicare.The heirs can keep the home once the reverse mortgage has been repaid. Furthermore, all proceeds are tax-free.

There are closing costs, which can be financed into the loan. Typically, the out-of-pocket expense totals is about $450.The customer is expected to continue maintaining the property, and paying the real estate taxes and hazard insurance premiums.

A Reverse Mortgage is due and payable when the property is no longer considered the customer's primary residence. The loan must be repaid in one payment--either from the sale of the home or through other resources. Reverse Mortgages do not require the homeowner to make any monthly payments to repay the loan.

The Reverse Mortgage or Home Equity Conversion Mortgage is the only reverse mortgage insured by the federal government. Home Equity Conversion Mortgages are insured by the FHA (Federal Housing Administration), which is part of the U.S. HUD (Department of Housing and Urban Development). The FHA tells HECM lenders how much they can lend you, based on your age and home value. The HECM program limits your loan cost, and the FHA guarantees that lenders will meet their obligations.

If you have any questions pertaining to Reverse Mortgages, please feel free to call me at (772) 283-1890

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