HIDING IN PLAIN SIGHT: Your home as a Long Term Care Policy
The majority of seniors own their own home, many with little or no mortgage debt. Not only is this often their largest single asset, but it is also the place they prefer to live as long as they are able. This is doubly true now in the age of COVID-19.
What most do NOT realize is that they can use the financial value of their home to fund long term care expenses WITHOUT giving up its use and enjoyment as a place to live…and WITHOUT the burden of a monthly mortgage payment.
For homeowners 62 or older, a Home Equity Conversion Mortgage, or “HECM”, can provide access to cash in the form of a lump sum, monthly payments, a line of credit or any combination of the three. Use of the funds is unrestricted, non-taxable and usually compatible with Medicaid eligibility and other means-tested programs.
In addition to the above, a HECM loan offers the following benefits which can be significant in many care-funding scenarios:
1. No defined term – loan is open and funds available without requalification for as long as at least one borrower lives in the home;
2. Changeable disbursement plan – method of access to available funds can be
changed any number of times during the life of the loan;
3. Increasing credit availability – the unused balance in a line of credit is guaranteed to grow monthly, whether the home increases or decreases in value;
4. Open-ended – any voluntary payments made against a line of credit will increase the line availability dollar-for-dollar in addition to the guaranteed internal growth;
5. Assured access – the loan can not be frozen, reduced or cancelled regardless of any change in property value or lender’s policies;
6. Non-recourse – regardless of loan balance and/or changes in property value, repayment of the loan can never exceed the value of the property at loan termination.
Providing for long term care is almost always about finding ways to pay for it. For many homeowners, their monthly mortgage payments have been doing double-duty providing funds for their potential LTC needs – they just didn’t know it.
Please consult a tax advisor. A reverse mortgage may affect benefits from or eligibility for some government programs such as Supplemental Security Income and Medicaid.
Borrower must maintain property as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.
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