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February 03, 2006
Help for Cash-Poor, House-Rich Senior Citizens
It didn't get a lot of attention, but last December the House of Representatives passed a bill that should enable more senior citizens to get reverse mortgages.
A reverse mortgage is a way to pull spending money out of your house without incurring monthly mortgage payments. You can take out a lump sum or arrange a line of credit and never pay any interest or principal on the loan until you move out of the house or die. You have to be at least 62 to qualify. It's a great deal for older people who want to tap the value of their houses but don't want to move out and can't risk a conventional mortgage, which would leave them with repayments that they might not be able to afford.
The House bill, sponsored by first-term Rep. Michael G. Fitzpatrick, Republican of Pennsylvania, is called the "Reverse Mortgages to Help America?? Seniors Act of 2005." The companion bill pending in the Senate is sponsored by another Keystone State Republican, Rick Santorum.
The most popular reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is federally insured. Fitzpatrick's bill, if it becomes law, will remove the congressional cap on how many such mortgages can be outstanding. The cap was raised last year to 250,000 from 150,000. Among those backing the bill: the AARP.
It strikes me as a great idea.
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The Reverse Mortgage segment of our industry is growing at over 100% a year. Most of today's senior's net worth is the equity in their homes. The reverse mortgage is a nice tool for them to convert that equity into income. This allows many to "age in place" rather than get shipped off to the nursing home.
The programs comes with a few "protections" for seniors as well. The price is the same regardless of what lender you use, including closing costs.
The program also requires "counseling" to protect the consumer and make sure they understand, from an outside source, what they are commiting themselves too.
I suspect that this will be a hot commodity when the bulk of the baby boomers get to retirement age. You must be at least 62 years of age to qualify for this loan.
If you have more questions, just give me a shout.
Posted by: David Porter at February 4, 2006 07:52 AM
Thanks for highlighting the fact that the bill isn't through Congress yet. I've noted at http://www.moveorstay.com/2006/02/03/read-those-press-releases-but-read-carefully that some news outlets misread a press release and wrote headlines suggesting it had already become law.
Posted by: Martha Bridegam at February 8, 2006 06:58 PM
For many retirees the cherished family home has skyrocketed. Reverse mortgages allow a homeowner to borrow against the equity in a home, but unlike a home equity loan, the loan and interest become due when the senior can no longer reside in the family home -- often due to illness.
Many seniors cannot foresee themselves going into a nursing home and do not envision the sudden reality of failing health.
Many people say they want to live better. They want a little vacation or need to fix the roof. But there are high costs associated with these types of loans that become due on the date the person can no longer live in the family home.
I am one of the few who do not usually recommend reverse mortgages since there are other kinds of traditional loans that don?? carry these conditions. The reality is that it's only a matter of time before the senior will require thousands of dollars for long term care for life-threatening illness like stroke, diabetes, Alzheimer's, or dementia.
Families should understand how government benefits can help pay long term care costs. Reverse mortgages impact the ability to qualify for public benefits such as Medicaid, Supplemental Social Security Income (SSI), and Medi-Cal benefits, that would otherwise help pay for that care.
The moment we can no longer live in our home, the reverse mortgage balance becomes due and is therefore not available for nursing home care. Reverse mortgages can be a very dangerous tool that threatens the family home. The reverse mortgage has no value to a person going into a nursing home. The mortgage company continually monitors to find out if the senior is in fact residing at home and they will continue to call to see if the senior really lives there!
Let?? say you??e a widow and a daughter living together. Mom takes out $250,000 to help pay for care at home but then she breaks the hip and can no longer take care of herself. The moment she leaves her house that mortgage becomes due and payable. She loses a place to return home to. She has now lost both her caregivers. The reverse mortgage has made it even more difficult for her to get better. The whole process is expensive and ugly.
Zoran K. Basich, Esq. founder of Glendale-CA based Nursing Home Solutions and member of the National Association of Elder Law Attorneys (NAELA), has been helping individuals and families solve long term care issues for 27 years working with families and individuals to preserve hard-earned assets while navigating complex financial and legal issues to help get people the best care possible.
Posted by: Zoran K. Basich at September 15, 2006 01:32 PM
ned a loan on my home for senior owner
Posted by: Raymond Mouton at December 18, 2006 10:55 PM