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For senior homeowners, the unavoidable risks of declining health and the burden of long term care costs may be funded without long term care insurance or depleting personal savings.

By George A. Downey

Staying at home to age in place continues to be a primary objective for most aging homeowners.  Important as that dream may be, though, unexpected health care problems and costs can upend the best of plans.  Statistically, one of every three aged 65 today will require long term medical assistance, and the probabilities get worse at aging increases.

The goal of home care is to enable treatment at home, rather than being forced to move to an assisted living facility or nursing home.  The costs vary significantly depending on hourly rates for the type of care needed (skilled or unskilled) and the amount of time required.  Clearly, these costs can be substantial.  For the most part, they are not covered by Medicare or Medicaid.  Typically, they are paid from personal funds, and/or long term care insurance if one had the foresight to purchase a policy earlier in life.

When needed, the questions turn to affordability.  Are there sufficient financial resources available to cover the home health care costs and continue to provide the income and liquidity needed to maintain the family’s lifestyle without depleting emergency reserves?  If not, a solution may be available in utilizing accumulated home equity (housing wealth) to solve the dilemma.

Reverse Mortgage – A Smart Solution to Two Problems

The HUD/FHA insured Home Equity Conversion Mortgage (HECM) reverse mortgage may:  (1) provide the funds needed to cover home health care costs among other needs, and (2) enable the homeowners to stay at home for the rest of their lives without the obligation to make mortgage payments.

The HECM is a unique home equity loan established by Congress to enable senior homeowners 62 and older, who want to remain in their homes, the capability to utilize a portion of their home equity to achieve greater financial security.

The borrower’s obligations are limited to: (1) keeping real estate taxes and homeowner insurance current, (2) providing basic maintenance, and (3) living in the property as their primary residence.

Compared to a traditional mortgage or home equity line of credit (HELOC), HECMs have unique terms favoring senior homeowners, including:

  • No monthly payments are required.
  • Credit line growth – the undrawn balance grows of the credit line increases continuously to provide more funds later as living costs increase.
  • No maturity date – loan repayment not due until no borrower resides in the property and the loan remains in good standing
  • Non-Recourse loan – neither borrowers nor heirs incur personal liability.
  • Funding amount established at closing – not affected if future property value declines

Clearly, the capability to utilize housing wealth most effectively is a vital consideration.  Properly used, it can have profound effect on improving and extending retirement security.  The key is education to understand the issues, ramifications, and all the choices that may be available to determine which, if any, may be best for each individual.

About the Author: George Downey (NMLS 10239) is a Certified Reverse Mortgage Professional (CRMP) and the founder of Harbor Mortgage Solutions, Inc., Braintree, MA, a mortgage broker licensed in Massachusetts (MB 2846), Rhode Island (20041821LB), NMLS #2846.  Questions and comments are welcome.  Mr. Downey can be reached at (781) 843-5553, or email: GDowney@HarborMortgage.com