There are so many financial planning strategies that make sense when using reverse mortgages. Some times adult children of aging parents need just as much or more education than the seniors themselves. After all, this is a relatively new concept, and often seems to good to be true. The important thing to remember is that reverse mortgages (also called Home Equity Conversion Mortgages) are backed by the federal government, and protections have been put in place for seniors and their families.
Heirs need to understand that with proper estate planning, they stand to inherit more than the value of their parent’s home. A reverse mortgage is one way to make that happen.
The National Council on Aging supports and advocates the use of reverse mortgages for long-term care planning and for managing the crisis of long-term care. Obviously, there are times when a client will not qualify for long-term care insurance, but fortunately, if they are a homeowner, there are still ways that we can help them. That’s why it’s so important for you to know the basics about reverse mortgages. Anyone who serves the senior market should have access to this important financial planning tool. For the NCOA statement and press release go to www.ncoa.org and search for “reverse mortgages”. AARP is also a supporter of this federally backed program for seniors. www.aarp.com
Let's look at an example case scenario, with a client who wants to purchase long-term care insurance and life insurance.
Jane Smith lives in St. Louis, Missouri.
Jane is eligible to receive a lump sum of $99,657.03, from the equity in her home. Jane will purchase a life insurance policy by paying a one time premium of $50,000.
This means that Jane will leave her heirs a death benefit of $222,736, plus the value of her home minus her loan balance. She will be protected from the catastrophic cost of long-term care, and will be able to stay in her home to receive that care.
You have now helped her heirs to receive a tax free inheritance that is worth more than the current value of her home.
Jane did all of this without touching a penny of her savings, investments, or current income. In fact, you handed her and her heirs the cash flow they needed to keep her safe for her remaining years.
If you want to sell more LTCi, my suggestion is to have access to all of the tools you need to make that possible. Team up with someone in your community who can write reverse mortgages, or learn how you can write them yourself! Below is a review of common myths and misconceptions about reverse mortgages in case you missed this column last month.
Common client myths and misconceptions about reverse mortgages
(a. k. a. Home Equity Conversion Mortgages):
The Lender will own my home. FALSE!
You, your family or estate continue to retain ownership of your home. The Lender does not take control of the title. The lender’s interest is only to the extent of the outstanding loan balance. As with a traditional mortgage they never have ownership in the property.
The Lender cannot wait for me to “get out of my house” so the lender can be repaid. FALSE!
The HUD approved Lender(s) are not in the business of selling homes. However, with the support of HUD they are in the business of helping seniors keep their homes and being able to use some of their equity to meet whatever financial needs they may have – without causing further financial difficulties by requiring a mortgage payment.
My heirs will be responsible for repayment of the loan. FALSE!
The Home Equity Conversion Mortgage is a Non-Recourse Loan, this means that the lender can only recover repayment of the loan from the proceeds of the sale of the property. If the property decreased in value and the loan amount was greater, the lender is paid the difference from the HUD Mortgage Insurance. Your heirs will not be responsible for the repayment of the loan
Home Equity Conversion Mortgages are very safe. TRUE!
FHA and FannieMae guarantee the payments that are made to you (not applicable to CASH Account option). You continue to own your home and are guaranteed that you can stay in your home as long as you like, AND…You (the Borrower) are guaranteed that you can never owe more than your house is worth. All of the above guarantees are further backed by the HUD Mortgage Insurance on HECM’s.
Valerie VanBooven RN, BSN, PGCM is an author, professional speaker, and professional geriatric care manager. She is also currently the National Marketing and PR Director for Next Generation Financial Services, a division of 1st Mariner Bank, based in Baltimore, MD. She can be contacted directly at 877-529-0550, or by email at Valerie@nextgenfinser.com If you want to write reverse mortgages yourself, you can! Her website is http://www.ngfs.net .