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Paying For
Care:
A Reverse Mortgage May Be An Option
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As the cost of everything keeps rising, so too
do the costs of caring for aging relatives.
Where to find the money to pay for in-home care,
an assisted living residence, or ultimately the
high cost of a nursing home is a constant
challenge for many families. One source of funds
many people haven't yet considered is a reverse
mortgage.
A reverse mortgage is an option for anyone over
the age of 62 who owns a house with substantial
equity. It's called a reverse mortgage because
it is structured "backwards." The bank or
mortgage holder makes payments to the homeowner,
instead of the homeowner making the payments.
The homeowner/borrower can stay in the home
without making any payments. When the homeowner
dies or moves away from the house, the house is
sold and the loan is paid off. Any money
remaining after the loan is cleared can go to
the original homeowner or the heirs.
If the heirs would like to keep the house, they
can either pay off the reverse mortgage or
refinance the house themselves.
There are three ways to receive money from a
reverse mortgage:
Some borrowers choose to receive a lump sum
payment. They can then put this money into
an interest-bearing account and draw on it as
needed;
Some find that a monthly cash payment
works better for their needs. They can choose to
receive the same amount every month to cover
their expenses, leaving the balance of the
available funds with the mortgage holder. This
method leaves more funds with the mortgage
holder and may reduce the interest and principal
that will eventually have to be paid back when
the house is sold.
Individuals who don't want to take the entire
amount as a lump sum, but who would prefer to
have the entire amount always available for
emergencies, may choose to set up a line of
credit. The available money remains with the
lending institution, but is available to be
taken in any amount when needed.
Reverse mortgage loans can be more expensive
than a traditional mortgage. Origination and
other fees, closing costs and interest are often
higher than conventional mortgages. Because some
programs require the borrower to attend
financial counseling before closing, these loans
can take longer to close.
Although taking out a reverse mortgage will
eliminate the need to make monthly mortgage
payments, it is still necessary to pay taxes and
insurance premiums, and to maintain the home. If
the homeowner fails to do these things the bank
can "call" the mortgage or reduce the amount of
money available so these expenses can be paid
directly.
Reverse mortgages are a good way to take
operating funds out of a house while still being
able to live in it. They are also complex, they
can be costly, and they will reduce the amount a
homeowner will leave for heirs. For these
reasons it is important to discuss this option
with family members and to get advice from
financial advisors before moving forward. |
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