Public Reverse Mortgages and Long-Term Care: Can They Work Together?
Kaiser Health News, March 7th, 2010
Here’s the problem: By the time we need long-term care services we often
don’t have readily available resources to pay for them. Only about
seven million Americans have private long-term care insurance. And, on
average, retirees have financial assets of less than $100,000—usually in
the form of a 401(k) or other retirement plan. If a 65-year old turned
that into steady monthly income, he’d get less than $600. That would pay
for a home health aide for barely seven hours a week.
But
Americans do have a way to fund this care: their home. Last year, we had
more than $7 trillion in real estate equity, even after the crash. In
2007, nearly two-thirds of American families headed by people 62 or
older owned a home free and clear But 20 percent were “cash-poor,”
according to the MetLife Mature Market Institute, and could have used
that equity to improve the quality of their lives.
Trouble is,
two-thirds of retirees have no intention of using their homes to fund
their old age. Some want to leave houses to their kids. Others don’t
understand how they can tap their home equity, and others misunderstand
the rules about home ownership and Medicaid.
So here’s a
possible solution. What if your state, in effect, helped you turn unused
home equity into cash to pay for the care you need when you become old
and frail? To sweeten the deal, what if the state let you have easier
access to Medicaid to supplement your own long-term care contributions?
You
could use the money to make your home wheelchair accessible, or pay for
a special van, or even for adult day care or that home health aide.
You’d have far more flexibility than with regular Medicaid. In return
for this upfront cash, your heirs would repay the state with modest
interest after you die, usually by selling your house. The state wins by
saving the cost of caring for you in a nursing home. You win by easily
accessing the equity that could allow you to stay at home.
This
program would look a lot like a reverse mortgage. With those, if you are
at least 62, you can take out a loan against the equity in your home.
You get either a lump sum in cash, access to a line of credit, or a
regular check each month. When you move or die, you or your heirs sell
the house and repay the loan plus interest.
But reverse
mortgages have been a bust. In 2007, fewer than 1 percent of eligible
homeowners had one. People have trouble understanding them. And they are
weighed down by high fees (there is a servicing fee, an origination
fee, mortgage insurance premiums, closing costs, and, of course, the
interest). At the same time, a troubling number of users are relatively
young borrowers who are tapping reverse mortgages to pay off credit
cards or fund vacations. The perverse result: They will have even less
home equity available when they really need it to pay for long-term
care.
Read more of this article.About Reverse Mortgages: We at NewRetirement do not necessarily endorse the notion of getting a Reverse Mortgage specifically to purchase some other kind of financial program. The above article is correct though in describing the valuable role they can play in pursuing whatever goals you may have in retirement.
Long Term Care Insurance: A massive risk looming over most seniors heads is the threat of long term care costs. Long term care insurance can be an excellent means of mitigating this risk. Learn more about it at NewRetirement.com.