Long-term Care and Reverse Mortgages

According to recent statistics, 40% of the population over 65 will require some form of long-term healthcare services during their remaining lifetimes. A senior’s average stay in a professional care facility averages 2.5 years and the costs can easily exceed $90,000 annually (Similar illnesses treated in the home, supported by home-healthcare providers, can also average approximately $80,000 annually).

Most Americans recognize the need for a long-term care insurance program to both protect their assets and relieve any potential burden on their families. One major obstacle often voiced by seniors is, “How do I pay for this insurance?” Many seniors no longer have the income necessary to pay the premiums for long-term care coverage and most are not comfortable utilizing their savings for this purpose. While an individual can always ignore the issue and simply rely on the state government to provide such future care, this option may not always be the best one since seniors may be required to spend down their assets to the “poverty level” before qualifying for these government programs.

Traditionally, seniors have had three choices for funding their potential against chronic illness and professional care; self-funding these expenses with personal savings, ultimately utilizing the government programs, or purchasing insurance with existing income. Now there is a fourth choice available – taking advantage of the opportunities offered by reverse mortgage programs.

Reverse mortgages are loan programs specifically designed for senior homeowners - 62+years old. Monies from a reverse mortgage can be withdrawn, tax-free, in three different ways: as a lump-sum, as a line of credit or as a monthly distribution. While all three options will generate a mortgage lien equal to the total available funds, the latter two options provide the homeowner with the benefits of a monetary resource without the liabilities that can be associated with a liquid asset. These loan proceeds can be used to pay the premiums for Long-term Care Insurance – if the borrower qualifies for it. But for others, a reverse mortgage loan may be the only means by which a senior can help protect a significant portion of the equity in his or her home from creditors. The use of trusts, gifts LLC’s, etc., are all worth their weight in gold if established timely, but the funding of these can be an issue.

A reverse mortgage is nothing more than a lien against a primary residence. It does not require the senior homeowner to relinquish title to the property. A reverse mortgage can even be established within revocable trusts and Life Estates. A reverse mortgage loan requires no monthly repayment of interest or principal, although there are no penalties for doing so. If a senior homeowner chooses to repay any portion of the interest accruing against their borrowed funds, the payment of this interest may be deductible (just as any mortgage interest may be). A reverse mortgage loan will be available to a senior homeowner to draw upon for as long as they live in their home. And, in some cases, the lender increases the total amount of the line of credit over time (unlike a traditional Home Equity Line whose credit limit is established at origination). If a senior homeowner stays in the property until they pass away, his or her estate valuation will be reduced by the amount of the debt.

Long-term care insurance is purchased on the basis of the value of total benefits to be provided. Through the Connecticut Long-term Care Partnership program, the amount of Medicaid asset protection is equal to the value of total benefits utilized (i.e., If all of the owner’s $250,000 CT Partnership LTC Policy benefits had been exhausted and then the policy owner filed for continued care under Medicaid, $250,000 of their assets would be exempted from Medicaid claims) . The American Homeownership and Economic Opportunity Act of 2000 (H.R.5640) signed into law on December 27, 2000, supports the use of reverse mortgage proceeds for both long term care and long-term care insurance.

When a reverse mortgage is used fund Long-term Care Insurance, the senior homeowner is using some of the equity in their house to protect the value of their home (and perhaps other assets), so they can feel more confident that their heirs will receive the legacy these seniors worked so long and hard to build.

If you feel you would benefit from a closer look at how a reverse mortgage program can be utilized, please contact me, Stephen Lamoreaux, Reverse Mortgage Specialist – call (203) 595-9610 or (800) 562-6365 x376 or email steve@dmlmortgage.com

Help Protect Your Home with a Reverse Mortgage

For many senior homeowners the prospect of living an ever longer life only gets better with each new advancement in the science of medicine. But, these medical “miracles” don’t come cheap and the rising costs of institutional healthcare exceed even the most aggressive estimates of inflation. The average daily costs associated with a professional nursing-care facility are well over $200 and will quickly deplete the savings of even the most frugal. Long-term care insurance is one way an individual can provide varying levels of asset protection, but this scenario has two distinct problems – one must be healthy enough to qualify for the insurance and if so, then be capable of paying for it.

Reverse mortgages are loan programs specifically designed for senior homeowners - 62+years old. Monies from a reverse mortgage can be withdrawn, tax-free, in three different ways: as a lump-sum, as a line of credit or as a monthly distribution. While all three options will generate a mortgage lien equal to the total available funds, the latter two options provide the homeowner with the benefits of a monetary resource without the liabilities that can be associated with a liquid asset. These loan proceeds can be used to pay the premiums for Long-term Care Insurance and/or Life Insurance Policies – if the borrower qualifies for them. But for others, a reverse mortgage loan may be the only means by which a senior can help protect a significant portion of the equity in his or her home from creditors. The use of trusts, gifts and LLC’s (to name a few) are all worth their weight in gold if established timely, but the funding of these can be an issue.

Long-term care insurance is purchased on the basis of the value of total benefits to be provided. Through the Connecticut Long-term Care Partnership program, the amount of Medicaid asset protection is equal to the value of total benefits purchased. Unless an individual purchases Lifetime Long-term Care insurance policy, once the benefits are exhausted, the healthcare provider/servicer is going to look to other assets for their remuneration. When a creditor assesses the net worth of an individual, liquidity is not an issue (except to ascertain an order of potential asset liquidation). Investments, savings, and homes are all within the creditors’ reach, unless the “legal protection” of these assets has been addressed well in advance.

A reverse mortgage loan requires no monthly repayment of interest or principal, although there are no penalties for doing so. If a senior homeowner chooses to repay any portion of the interest accruing against their borrowed funds, the payment of this interest may be deductible just as any mortgage interest may be. In effect, a reverse mortgage can be considered an interest-only loan for its entire term (unlike a typical Home Equity Loan which has a limited interest-only period [9 years, 10 months in CT], followed by mandatory amortization [typically 20 years] to maturity). A reverse mortgage loan will be available to a senior homeowner to draw upon for as long as they live in their home. And, in most cases, the lender increases the total amount of the line of credit over time (unlike a traditional Home Equity Line whose credit limit is established at origination). If a senior homeowner stays in the property until they pass away, his or her estate valuation will be reduced by the amount of the debt.

A reverse mortgage is simply a lien against a primary residence. It does not require the senior homeowner to relinquish title to the property. Reverse mortgages can be established within revocable trusts and Life Estates. When utilized effectively, a reverse mortgage can help a senior homeowner meet their current needs and strengthen their financial future.

If you feel you would benefit from a closer look at how a reverse mortgage could work for you, please contact Stephen V. Lamoreaux, Reverse Mortgage Specialist -
(203) 595-9610 or (800) 562-6365x376 or via email – steve@dmlmortgage.com