Will a Reverse Mortgage Keep Me in My Home For Life ?

By John Krajsa
AFC Reverse Mortgage

None of us know if we can stay in our home for life. How long we will live, future costs and whether our future income will be sufficient cannot be known, regardless of whether we have a reverse mortgage. A reverse mortgage will always improve cash flow, either by eliminating a mortgage payment, or by providing additional cash, possibly both. If you continue to pay your real estate taxes and homeowner insurance and keep the home in reasonable shape, you can stay in your home as long as you choose. A reverse mortgage has no term or end date.

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Choosing a Home Care Service

By John Krajsa
AFC Reverse Mortgage

Making the decision to hire a home care service to provide care for your loved one is an important decision and can, at the same time, be very difficult. If an illness or recovery from surgery requires nursing care or physical therapy, a physician may order skilled home care services that provide both skilled providers and personal aides. Your decision is then based on the obvious medical determinations made by the doctor. But what if you as the family caregiver must determine the extent of care needed without the help of a doctor?

Each home care situation is unique. In the beginning, family or friends step in to help with simple tasks and support for aging seniors who want to stay in their homes. As long term care needs progress, more time is required to manage those needs. Physical and mental conditions change with aging making usually routine hygiene and daily living activities difficult for an aging individual. Even with the healthiest of seniors, the ability to drive a car, shop for groceries or do general housekeeping eventually needs to be relinquished to the responsibility of another person.

In one example, Karen, would stop by her parents’ home on her way to work every morning and again on her way home from work in the evening. She checked in the morning to see that they were up and ready for the day and Karen would take a shopping list for things they needed. In the evening she delivered the needed items she had purchased during her lunch break and sometimes she fixed a meal when one was not prepared by her mother. This worked well until Karen began to notice her father did not shave or dress during the day and both parents were forgetting their medications. Karen felt more time and supervision was needed in their care but with her own family and job, she could not do it. Non-medical or personal home care services would be a good option for Karen to consider.

Before starting your search for a non-medical or personal home care company, determine what the care needs are and how much time each week will be required for assistance from the company. You may want to consult with the family physician and other family members as well as experienced social workers or care managers to determine needs. Most home care companies, as well, will help you do an assessment at no charge. With your care needs in hand, you are ready to begin your search.

The National Association for Home Care & Hospice (http://nahc.org/home.html) gives the following guidelines and checklist in searching for a home care company.

•  How long has this provider been serving the community?
•  Does this provider supply literature explaining its services, eligibility requirements, fees, and funding sources? Many providers furnish their home care clients with a detailed “Patient Bill of Rights” that outlines the rights and responsibilities of the providers, clients, and family caregivers alike.
•  How does this provider select and train its employees? Does it protect its workers with written personnel policies and malpractice insurance? Does it protect clients from theft or abuse by bonding its employees?
• Does this provider assign supervisors to oversee the quality of care clients are receiving in their homes? If so, how often do these individuals make visits? Who can the client and his or her family members call with questions or complaints? How does the company follow up on and resolve problems?
• What are the financial procedures of this provider? Does the provider furnish written statements explaining all of the costs and payment plan options associated with home care?
• What procedures does this provider have in place to handle emergencies? Are its caregivers available on notice?
• How does this provider ensure client confidentiality?

If a home care company has not previously been recommended to you, ask for a list of previous clients and call for their experience with this provider.

Following up on these guidelines can help you determine the quality of personal care that is given. Many states license non-medical home care companies and require both legal and health standards to be maintained.

Read about individual home care companies in your area on the National Care Planning Council’s website www.longtermcarelink.net

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Cost of a Reverse Mortgage – Part II

By: John Krajsa
AFC Reverse Mortgage

Last week in our post on “Cost of a Reverse Mortgage” we commented on how some analysts tend to focus on the dollar cost when evaluating Reverse Mortgages. When you think of it, isn’t it really impossible to evaluate whether the dollar cost of a loan is reasonable without knowing the annual rate associated with that cost? For example, what if a lender said, “I’ll charge you $50,000 to borrow $100,000 for 10 years.” That $50,000 is 50% of the $100,000 borrowed, but does that mean that $50,000 is too much to pay for this loan?

What if a lender said, “I’ll charge you $10,000 to borrow $20,000 for 5 years. Is that a fair charge? The $10,000 is 50% of the $20,000 borrowed, just as the $50,000 is 50% of the $100,000 borrowed.  Does that tell you anything about whether the amount charged is fair?

What if you knew that $50,000 is the total amount you would owe if you borrowed $100,000 at a 5% annual rate for 10 years ($5000 per year x 10)?  What if you knew that $10,000 is the amount you would owe if you borrowed $20,000 at a 10% annual rate for five years ($2000 per year x 5)? Now you know that the first loan is a 5% annual rate loan, and the second is a 10% annual rate loan, you have a means to evaluate the dollar charge.

You may agree that the periodic charge (the annual rate) works, but why? The reason is that a loan is a rental, not a purchase transaction. In a rental transaction you pay a fee for use of an item for a period of time, and a rental transaction is evaluated by the periodic charge, not the total charge over time. As would be true in any rental transaction, the total dollar charge for a loan is the total of all of the periodic charges for the time you have borrowed (or rented) the money. The longer you borrow the money, the higher the dollar charge, but no matter how long you borrow (or rent) the money, isn’t it the periodic charge that determines if the price is fair?

More to follow next week.

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Cost of a Reverse Mortgage

By: John Krajsa
AFC Reverse Mortgage

There is popular analysis of FHA “Home Equity Conversion Mortgage “ (HECM) loans out there that attempts to evaluate the cost of a HECM primarily through subjective judgements about dollar cost (“high” closing costs; dollar amount of FHA insurance premiums; ‘high” ratio of closing costs to home value). This analysis tends to be dismissive of Federal cost estimates (Annual Percentage Rate and Total Annual Loan Cost rates) found in disclosures promulgated under the “Truth in Lending Act” (TILA) and Federal Reserve Regulation Z. 

The subjective analysis is dismissive of Federal cost estimates in that it concludes that all HECM loans are expensive, while not addressing the fact that Federal disclosures tend to estimate the true cost of many HECM loans to be quite reasonable, even low. It is a mystery to us how an analysis that on its face is inconsistent with and does not distinguish its conclusions from Federal cost estimates has gained credence. 

In contrast, a HUD official defended the HECM program last summer at the National Reverse Mortgage Lenders Association public policy conference in Washington by saying that these loans are not expensive loans, they are transparent loans.

In future weeks we will discuss the cost of reverse mortgages, addressing some of the issues raised by the subjective analysis while providing examples of Federal TILA cost estimates for HECM loans.

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Why Plan For Long Term Care?

By John Krajsa
AFC Reverse Mortgage

Let’s face it, no one wants to think about a time when they might need long-term care. So it is understandable that planning ahead for this possibility often gets put off on the ever-growing “to do” list. Most people first get exposed to long-term care when they or a loved one need care. The problem is – at that point their options become limited because they lack information, they need services immediately, and they lack resources to pay for preferred services.

It is a good idea to plan ahead for long-term care because there is a good chance you will need some long-term care services if you live beyond the age of 65.  About 70 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime, and more than 40 percent will need care in a nursing home, according to the U.S. Department of Health and Human Services (HHS).

According to “The Need for Long Term Care Planning” by Thomas Day, today about 71% of all long term care hours are provided in the home by family. Most is provided free of charge by family members, friends and volunteers, but some is paid for from family funds and insurance. That 71% figure for family involvement indicates that it is time for all of us to consider long-term care planning.

A few reasons why planning ahead is important:

• The cost of long-term care services often exceeds what the average person can pay from income and other resources.
• Planning ahead means less emotional and financial stress on you and your family.
• Planning ahead is to ensure greater independence should you need care.

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