Use Of A Reverse Mortgage To Pay For Home Care Service

By John Krajsa
AFC Reverse Mortgage

A fairly common use of reverse mortgages is to provide the funds for in home care. Although the money from a reverse mortgage cannot pay for these services indefinitely, reverse mortgage funds when combined with other assets can extend the period of time that such services are available.

In a typical situation the homeowners working with family members get to the point that family and friends can no longer provide the necessary services and an evaluation is made of the available assets. When staying in the home as long as possible is the goal, sale of the home to raise funds is not an option, and consideration is given to borrowing against the home. Conventional financing is usually ruled out since the homeowners are likely not employed, may be the object of the care being obtained, and in any event, cannot qualify for conventional financing. Enter the reverse mortgage, specifically the FHA insured Home Equity Conversion Mortgage (HECM). Since no monthly mortgage payments are required, there is no income test for a reverse mortgage, and, yes, even the homeowner who is the object of the care and may be unemployed and unemployable can qualify for a reverse mortgage. So through a reverse mortgage the home can serve as an additional pot of cash along with other resources to help pay for in home care.

Some of the factors to be considered in choosing a home care service were recently addressed in an article from the National Care Planning Council. More on that next week.

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Cost of a Reverse Mortgage – Part III

By: John Krajsa
AFC Reverse Mortgage

Last week in “Cost of a Reverse Mortgage – Part II” we attempted to demonstrate how dollar cost, standing alone, can be misleading in evaluating the cost of a loan, since a loan is really a rental transaction. You don’t buy money; you pay a fee to use it for a period of time and then return it, and the appropriate measure of the cost of a rental transaction is the periodic charge, which in a loan is the annual rate.

The Federal government in the Truth in Lending Act, passed in 1968, originally provided us with the Annual Percentage Rate (APR), and more recently has provided us with the Total Annual Loan Cost rate disclosure (TALC) for reverse mortgages. These Federal cost estimates, found in Section 226 of Regulation Z promulgated by the Federal Reserve, estimate the true cost of a loan with cost expressed as an annual rate. Unlike the APR, the TALC disclosure for reverse mortgages always includes all costs (closing costs, FHA insurance premiums, monthly service fees and, of course, interest). Also, unlike the APR disclosure which only estimates the cost of a loan at one point in time, TALC rate disclosures estimate the total annual cost of a reverse mortgage at various points in time.

Consumer advocates have praised the TALC as “. . . more complete than the Annual Percentage Rate (APR) disclosure required for other loans.” TALC disclosures generally estimate the total annual cost of a reverse mortgage to be higher in the early years and lower as time goes on, and to be lowest when the loan is used for its intended purpose, as a long-term solution. We’ll talk more about TALC rates next week.

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Senior Citizen Housing – Overview of Challenges

By: John Krajsa
AFC Reverse Mortgage

Many older Americans are finding it very challenging to be able to stay in their home as they grow older.  Some of the reasons are health issues that tend to increase with age, but others find that instead of their home being their safety net, it has become a financial burden. 

What older Americans need to consider is the question, “is staying in my home the right option for me”?  There are many things to consider besides the financial side of things.  And what’s important to remember is that every situation is unique and there isn’t one answer that fits all scenarios. For example, most existing homes today were not built with a view to being used by an aging population. Doorways may be too narrow for a wheelchair to pass through. Although  stair glides may be a lifesaver, not all stairways can accommodate them. The concept of “Universal Design;” where a home is planned for eventual use by seniors is unfortunately a new idea. Other non-financial factors are addressed starting on Page 3 of the NCOA “Use Your Home to Stay at Home” guide.

As many American face these tough questions, we will take a look next week at what resources you have to help.  Stay tuned.

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