George Omilan - NMLS #873983, 4/24/2017
Our homes are familiar with a sense of safety and serenity like no other place as we age. Logically, as the need arises for care, it is often best and most cost effective to look no further than our homes to receive care. In-home care has evolved considerably. Today, with the levels of skilled care and the broad array of services that can be brought to you and administered in your home, the question often becomes one of how do you pay for it and not the availability of care.
Paying for care is not so simple for retirees living on fixed incomes with finite assets. If we all knew how long we were going to live and the levels of care we would require in the interim, then it would be a lot easier, but that’s the conundrum. We do know that care in the home offers the best alternatives and least threatening lifestyle adjustments. Now it’s time to get innovative and think about paying for care from the macro level.
Most people, when they have expenses or think about care, focus on the binary elements. The simple things like dissipating their savings to pay the bills. When the money runs out and you still need the care, most people will then turn to debt and whatever family help may be available. Some people have long term care insurance but this doesn’t pay everything and it has its limits. In many cases, there is home equity, but it is locked up in the home and there are limited ways of accessing it short of increasing required monthly payments or outright selling the home. Both of these options carry risk and appear to be self-defeating for retirees.
Paying for Care with a HECM
Let’s look at how your home equity can help you with a HECM Reverse Mortgage. It’s all directed toward controlling debt and targeting spending levels based on your fixed income that will allow each of us to live within our means and not sacrifice the potential need for care.A government insured reverse mortgage will enable eligible homeowners with sufficient home equity to accomplish two very profound things. First, it will allow you to pay off any forward mortgages and/or home equity lines that currently require monthly principal and interest payments to lenders. This immediately creates increased monthly cash flow for living expenses and literally neutralizes mortgage debt on your income statement. Secondly, a reverse will provide an innovative mechanism with a credit line for tapping additional home equity, as the need for care or emergencies arises, in a safe and secure manner without undue risk or future escalating monthly payments. These two elements will allow you to focus on financial balance and effectively provide leverage so you can better live within your means with your current fixed income and finite assets. That would not be an available option if you were simply moving debt around.
Funding Options with a HECM
Here are the funding options in detail that a Reverse Mortgage credit line will offer for funding care:- Step 1: Paying off existing mortgages at closing. This will effectively swap out an existing mortgage that requires a forward payment and seamlessly replace it with a new deed of trust in the form of a reverse mortgage that does not require a monthly principal and interest payment to your lender. The money that previously would have been required to pay the mortgage is now available for expenses and care. It’s still your home but now you have more cash available.
- Step 2: Select your secondary funding options:
- Credit Line feature. After Step 1, a credit line can be tailored for your remaining available home equity. This is a unique credit line that provides annual growth in your available credit. The untapped portion of your available home equity will actually grow and compound at approximately 5-6% annually. This credit line is an integral part of the reverse mortgage deed of trust. There are no payments due monthly and it cannot be capped or taken away like a traditional bank credit line. Try comparing this to a bank CD.
- Term Payment Option: This is another means, in lieu of the credit line, of configuring your available home equity after Step 1. As an example, a five or a ten year term payment may be an attractive option if you feel this time frame is the most important for your care requirements. This will provide you higher monthly advances as compared to a life expectancy time table.
- Tenured Payment Option: This is yet another means, in lieu of the credit line, of configuring your available home equity after Step 1. This option is quite unique in that it will cast an annuity-like payment for the rest of your life and the life of your surviving spouse no matter how long you live. These funds can be used to supplement retirement income and pay for care.
