Long-Term Care Insurance-Can A Reverse Mortgage Be Right for You?

Reverse mortgages have been battered in the media recently, but reverse mortgages are often the perfect solution for cash-strapped seniors. The dollars that come in from reverse mortgages can be the difference between paying basic bills such as food and utilities, and even certain medical expenses or not.

Reverse mortgages are designed for people 62 and over. They enable you to have a bank buy back your home while you’re still living in it. You have to pay the money back (plus interest) when you vacate or sell the home, and there are fees involved. Still, these mortgages do have a place, and they're rapidly finding it.

Here's what you need to consider before you (or your parents) commit to a reverse mortgage:

Your age. These mortgages aren't for everyone, but the older you are, the more likely you are to benefit from one. For one, you probably have more equity in your home. But the other reason is this: Banks calculate the payout based on not only the value of your home, but your age and average expected length of life.

Your situation. A reverse mortgage probably isn't for you if you're not planning to stay in your home for a long time, so consider that upfront. Then think about other factors related to both your current and future lifestyle. People get these loans for a variety of reasons. Some do it to finance an active lifestyle in their retirement, others because the home needs to be repaired or updated with health care equipment or to help with the rising costs of health care.

Learn how the loans work. Most reverse mortgages require no repayment as long as you live in your home. The loan must be repaid in full, along with interest, when the last living borrower dies, sells the home or moves away.

Understand the lender’s role. A lender – typically a bank – will provide you with a loan in an amount ranging from 20 percent to 60 percent of your home’s equity. In exchange, the lender will receive a portion of your home’s value when you die or sell the home.

Choose a payment preference. The loan can be paid to you in three ways: as a lump sum, in regular monthly or quarterly installments, or as a line of credit you can tap as needed.

Know your responsibilities. Borrowers are responsible for property taxes, insurance and home repairs. Your loan could become due and payable in full if you fail to meet those responsibilities.

Assess neighborhood real estate prices. Over time, a reverse mortgage whittles away at the home equity you built up over the years. But if you live in an area where home prices have a history of rising, your home’s equity could continue to go up despite your reverse mortgage. It goes without saying, though, that you can never count on such increases to last forever. As evidence, just consider the housing slump and accompanying foreclosure fallout sweeping real estate markets across the United States.

The reverse mortgage can be an excellent financial planning tool for seniors from all walks of life. It can enhance their retirement years by providing some extra income to help provide seniors with a lifestyle of their choice. They can be used as part of their estate or legacy planning.

For more information on long-term care financing and planning, visit LongTermCareInsurancePros. and download a Free Ebook.