Reverse mortgages can be used to make financial planning more efficient. Sometimes, adult children of aging parents require just as much education or even more than seniors. This is a new concept that often seems too good to be true. Reverse mortgages, also known as Home Equity Conversion Mortgages, are backed by federal government. Seniors and their families have protections.
Proper estate planning can help heirs to more than just the value of their parents’ homes. Reverse mortgages are one way to do that.
The National Council on Agingsupports the use reverse mortgages in long-term care planning. There are instances when clients will not be eligible for long-term insurance. However, homeowners have many options to help them. It is important to understand the basics of reverse mortgages. This important financial planning tool should be available to anyone who serves seniors. To view the NCOA statement, press release and www.ncoa.org search for “reverse loans”. The AARP supports this federally supported program for seniors. www.aarp.com
Let’s take an example of a client who is looking to buy life and long-term insurance.
Jane Smith lives in St. Louis Missouri.
65 years of age
A home valued at $200,000
Standard health rating
Plan for 5 years
Protection against compound inflation
90 elimination period
$150/day coverage- comprehensive
The annual premium for both is $4548
Jane can receive a lump sum from her equity in her house, amounting to $99 657.03. Jane will pay a $50,000 premium to purchase a life policy.
Jane leaves $49,657.03 to Jane in a line credit that grows at 6.35% annually.
o Every year, she pays her LTCi premium through the line of credit.
Jane will be leaving her heirs $222,736, plus her home’s value and the loan balance. Jane will be protected against the devastating costs of long-term nursing and can continue to live in her home.
Your generosity has allowed her heirs to inherit a tax-free inheritance that is more than her home’s current value.
Jane did this without spending a single penny of her current income, savings, or investments. You actually gave Jane and her heirs all the cash they needed to ensure her safety for her last years.
Learn.
I recommend that you have all the tools necessary to sell more LTCi. You can either work with someone you know who is able to write reverse mortgages or find out how you can do it yourself. In case you missed it last month, here is a list of common misconceptions and myths about reverse mortgages.
Misinformations and myths common to clients about reverse mortgages
(a.k.a. Home Equity Conversion Mortgages ):
My home will be owned by the Lender.FALSE!
Your family, or your estate will continue to own your home. The title is not under the control of the lender. Lender’s only interest is the amount of outstanding loan balance. They do not own the property, just like a traditional mortgage.
The Lender can’t wait for me “to get out of my home” in order to repay the lender.
FALSE!
HUD approved Lenders are not in business selling homes. They are able to help seniors maintain their homes with the support from HUD and be able to use some equity to meet any financial needs that they may have, without having to make a mortgage payment.
The loan will be repaid by my heirs.
FALSE!
The Home Equity Conversion Mortgage can be used to convert equity into a mortgage. This is a non-recourse loan, which means the lender cannot recover the loan repayments from the proceeds of the property’s sale. The lender will be paid any difference from HUD Mortgage Insurance if the property’s value decreases or the loan amount is greater. The loan repayment will not be borne by your heirs
Home Equity Conversion Mortgages can be very secure.
TRUE!
FannieMae and FHA guarantee your payments (not applicable for CASH Account option). You (the Borrower), are guaranteed that your house will be worth at least the amount you owe. The HUD Mortgage Insurance on HECM adds additional protection to all of these guarantees.
