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Using a Reverse Mortgage to Pay for Long-term Care Costs

Because long-term care insurance requires you to be in good health, this planning option is not available to everyone, especially older applicants for whom the premiums may also be prohibitive. If you are at least 62 years of age and you own your home, you could use a reverse mortgage to pay for care at home or for a long-term care insurance policy that otherwise may be unaffordable.

A reverse mortgage is a means of borrowing money from the amount you have already paid for your house. You are freeing up money that would otherwise only be available to you if you sold the house. You can stay in the house until you die, without making monthly payments. The loan is repaid when the borrower dies or sells the home. The balance of the equity in the home will go to the homeowner’s estate.

Payments can be received monthly, in a lump sum or the money can be used as a line of credit. The funds received from a reverse mortgage are tax-free.

While the eligibility age is 62, it is best to wait until your early 70's or later. The older the borrower, the larger the amount of equity available. There are maximum limits set by the federal government each year as to how much of the equity can be borrowed.

You can use the funds from a reverse mortgage to cover the cost of home-health care. Because the loan must be repaid if you cease to live in the home, long-term care outside the home can't be paid for with a reverse equity mortgage unless a co-owner of the property who qualifies continues to live in the home.

Use Your Home to Stay at Home Program The National Council on the Aging, with the support of both the Centers for Medicare and Medicaid Services (CMS) and the Robert Wood Johnson Foundation, is laying the groundwork for a powerful public-private partnership to increase the use of reverse mortgages to help pay for long-term care. The ultimate goal of the Use Your Home to Stay at Home™ program is to increase the appropriate use of reverse mortgages so that millions of homeowners can tap home equity to pay for long-term care services or insurance.

Reverse Mortgages Can Help with Long-Term Care Expenses

A new study by The National Council on the Aging (NCOA) shows that using reverse mortgages to pay for long-term care at home has real potential in addressing what remains a serious problem for many older Americans and their families.

In 2000, the nation spent $123 billion a year on long-term care for those age 65 and older, with the amount likely to double in the next 30 years. Nearly half of those expenses are paid out of pocket by individuals and only 3 percent are paid for by private insurance; government health programs pay the rest.

According to the study, of the 13.2 million who are candidates for reverse mortgages, about 5.2 million are either already receiving Medicaid or are at financial risk of needing Medicaid if they were faced with paying the high cost of long-term care at home. This economically vulnerable segment of the nation’s older population would be able to get $309 billion in total from reverse mortgages that could help pay for long-term care. These results are based on data from the 2000 University of Michigan Health and Retirement Study.

“There’s been a lot of speculation whether reverse mortgages could be part of the solution to the nation’s long-term care financing dilemma,” said NCOA President and CEO James Firman. “It’s clear that reverse mortgages have significant potential to help many seniors to pay for long term care services at home.”

According to the study, out of the nearly 28 million households age 62 and older, some 13.2 million are good candidates for reverse mortgages.

“We’ve found that seniors who are good candidates could get, on average, $72,128. These funds could be used to pay for a wide range of direct services to help seniors age in place, including home care, respite care or for retrofitting their homes,” said Project Manager Barbara Stucki, Ph.D. “Using them for many can mean the difference between staying at home or going to a nursing home.”

Seniors can choose to take the cash as a lump sum, in a line of credit or in monthly payments. If they choose a lump sum, for example, they could pay to retrofit their home to make kitchens and bathrooms safer and more accessible – especially important to those who are becoming frail and in danger of falling. If they choose a line of credit or monthly payments, an average candidate could use the funds to pay for nearly three years of daily home health care, over six years of adult day care five days a week, or to help family caregivers with out-of-pocket expenses and weekly respite care for 14 years. They could also use it to purchase long-term care insurance if they qualify.

“Up until now, though, most of these seniors have not tapped the equity in their homes -- estimated at some $1.9 trillion -- to pay for either preventive maintenance or for services at home,” noted Peter Bell, executive director of the National Reverse Mortgage Lenders Association. Noting that the average income of men aged 65 and over is $28,000 and $15,000 for women, he added, “This study shows that unlocking these resources can help millions of ‘house rich, cash poor’ seniors purchase the long-term care services they feel best suit their needs.”

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