Use Your Home to Stay at Home. The official reverse mortgage consumer booklet approved by the U.S. Department of Housing & Urban Development

Transcription

1 Use Your Home to The official reverse mortgage cosumer booklet approved by the U.S. Departmet of Housig & Urba Developmet

2 The Natioal Coucil o Agig (NCOA) is committed to helpig older persos maximize all resources, public ad private, so that they ca be as idepedet as possible i the residece of their choice. As people grow older, more ad more of them face health or ecoomic challeges that ca make it more difficult for them to cotiue to live i their ow homes. For may seiors, their homes are their biggest fiacial asset. This booklet is desiged to help older adults uderstad ad assess the potetial rage of optios, icludig reverse mortgages, that may be available to them for payig for the services ad supports they may eed. James Firma, Presidet & CEO Natioal Coucil o Agig The Natioal Coucil o Agig is a respected atioal leader ad trusted parter to help people aged 60+ meet the challeges of agig. Our missio is to improve the lives of millios of older adults, especially those who are strugglig. Through iovative commuity programs ad services, olie help, ad advocacy, NCOA is parterig with oprofit orgaizatios, govermet, ad busiess to improve the health ad ecoomic security of 10 millio older adults by Lear more at coa.org You are free to copy, distribute, ad trasmit this publicatio for couselig-related purposes. The limits for reuse or distributio are spelled out at Natioal Coucil o Agig. All Rights Reserved.

3 Overview Like most Americas, you probably wat to stay i your home as you grow older. However, as it gets harder to do thigs o your ow, you may eed a helpig had with everyday tasks. It ca be costly to pay for help at home, alog with home modificatios ad other health eeds. For may people, these extra costs are a real burde. Older Americas ofte hold oto their homes as a est egg i case they eed extra moey. But whe that raiy day arrives, how do you make use of that home value? Oe optio is to sell the house ad move. There is aother optio that would allow you to cotiue to live i your home tappig the stored value of your home with a loa. Home equity is the differece betwee the appraised value of your home ad what you owe o ay mortgages. A reverse mortgage ca allow you to covert some of that home equity ito cash so that you ca stay at home. Usig the equity i your home ca seem like a good idea. But is it right for you? It is a decisio you should cosider carefully, because your house may be your most valuable fiacial asset. This booklet will help you uderstad the beefits ad challeges of this fudig optio. After readig this booklet, you should be better able to: Decide if stayig at home is right for you. Uderstad the reverse mortgage optio, as well as other ways you ca pay for help at home. Kow where to go for more iformatio. 3

4 People who eed help at home face may challeges. A ogoig health problem ca make it hard to kow how much loger you ca cotiue to live at home. You should also be aware of govermet beefits ad commuity programs for seiors, ad how a reverse mortgage may affect your eligibility for these programs. This booklet will give you the tools you eed to make wise choices. It will help you ask the right questios ad pla ahead so that you ca stay at home as log as possible. Talkig with family, a reverse mortgage couselor, a local seior services provider, or a kowledgeable fiacial advisor also ca help. 4

5 Challeges of Agig i Place Livig at home ca become difficult as you grow older. Ogoig health coditios such as arthritis or poor eyesight ca make it hard to do household chores, drive a car, or climb stairs safely. People who are forgetful may ot take their medicie o time or be able to prepare utritious meals. Without extra help, older people ofte struggle with everyday tasks after a serious heart attack, stroke, or fall. I the past, whe a older perso had trouble livig aloe, that was a sigal that it was time to move i with family or go to a ursig home. Today, there is a wider rage of optios, ad you may be able to receive some services ad supports i your home or commuity. This is ofte called agig i place. Choosig to live i your home whe you eed extra help ca be a big decisio. There are may practical ad fiacial factors to cosider. You will eed to balace health ad safety issues with your desire for idepedece ad a familiar settig. It is crucial to pla ahead as much as possible. Aswerig these questios ca help you get started: Does your home meet your eeds? What kid of help do you eed to stay at home? What resources do you have to help you stay at home? What other housig optios do you have? It is importat to remember that every situatio is uique. What may work for oe perso might ot be the best choice for someoe else. 5

6 Does Your Home Meet Your Needs? First, make sure that your home is safe ad comfortable, ad fits your eeds at the preset time, ad ito the foreseeable future. The right housig for you Where you live ad the house itself ca keep you from agig i place. Thik about these factors to see if stayig i your ow home makes sese: Chagig eeds Ca you hadle the yard work, upkeep, ad repairs, or afford to pay for help? A house that was ideal 30 years ago may ow be too large or too difficult to hadle aloe. Safety Ca you safely live i the home as your eeds chage? A house with steep or broke stairs, or without hadrails or ueve floors is a accidet waitig to happe. Have you falle i your home or are you fearful of fallig i your home? Do you have adequate lightig outside ad iside your home? A usafe eighborhood may make you afraid to go shoppig or atted social activities. Isolatio Do you have frieds or family earby? Is public trasportatio available if you ca o loger drive? A trip to the grocery store, pharmacy, or place of worship ca be a problem whe you caot drive. It is easy to feel loely or trapped whe family ad frieds are far away. Ease of use What if you become uable to climb stairs, or to walk? If you eed a walker or a wheelchair, it helps to have clear pathways, a bedroom ad full bath o the groud floor, grab bars i the bathroom, ad ramps for the etrace to the house. If ay of these issues apply to your home, cosider whether you ca address them by makig modificatios to your house or brigig i outside help. I some cases, it may make more sese to sell the house ad move to a more suitable place. 6

7 What Kid of Help Do You Need? Major areas to cosider Keepig up with Property charges such as taxes, hazard isurace ad HOV fees etc. Housekeepig Meal preparatio Shoppig for food, medicatios, ad other ecessities Yard work icludig mowig, sow removal, etc. Home repairs ad modificatios Moey maagemet Trasportatio Persoal care (bathig, dressig, etc.) Medical or ursig eeds Social cotact Sources of help Most older people who have health problems get help i their ow homes, ofte from family or frieds. There are also may professioal home ad commuity care services. A homemaker ca provide trasportatio, do household chores ad errads, prepare food, ad also provide some compaioship. A persoal care aide ca help with activities such as bathig ad dressig. A urse ca check your medicatios ad give medical care, while a therapist ca provide rehabilitatio i your home. Adult day ceters may offer social activities, health checks, ad rehabilitatio therapies. Relyig o family ad frieds ca work if they are earby ad have the time ad eergy to spare, but ot every family has a available caregiver. Relyig o paid services may ot work if you do ot wat a strager i your home. It ca also be hard to fid the services you wat at a price you ca afford. 7

8 Cost of supportive services Whe you get paid help at home, usually someoe comes ito your house from a home care agecy. These professioal services ca be expesive ad i may cases are ot covered by Medicare or other isurace. While services i the home ad commuity may cost less tha livig i a ursig home or other care facility, these expeses ca add up over time. For example, if you eed a couple of hours of help from a home health aide i the morig ad at ight, you could easily sped $80 per day, or $2,400 per moth. Media atioal cost of services, 2014 Homemaker: Home health aide: Adult day health care: Assisted livig: Nursig home: $19/hour $20/hour $65/day $3,500/moth $212-$240/day Source: Geworth Fiacial 2014 Cost of Care Survey You also may eed to make chages to the house to make it easier ad safer to stay at home. Home modificatios ca rage from $100 to istall a grab bar to thousads of dollars to istall a stair lift or add a groud-floor bathroom. 8

9 What Resources Do You Have to Help You Stay at Home? Look at all the resources you ca use to help you live at home. You likely have three major sources of help: support from family ad frieds, persoal icome ad assets, ad the equity i your home. Support from others Most older Americas who have difficulty doig everyday tasks deped o family ad frieds for help. Childre ca ru errads, provide trasportatio, ad help maitai the house. Neighbors ad frieds may help with yard work or home repairs. A spouse or adult childre ca provide a high level of lovig care. But thik carefully if you expect to rely o your spouse or childre as your oly source of help. It ca be very tirig to help someoe every day, especially if they have trouble walkig or have severe chages i memory ad thikig. Caregivers may develop health problems because of the strai of these activities. Workig caregivers may have to give up their job or cut the umber of hours they work to give help at home. Your childre or spouse may ot have the ability ad willigess to provide the level of care you eed. Persoal fiaces Payig for i-home services ad other health-related expeses ca quickly use up a big part of a retiremet est egg. Review your fiaces carefully. They will be a importat part of your decisio to remai at home. Your fiaces iclude your icome, savigs, ad ivestmets. Estimate your household budget Work out your icome ad livig expeses, alog with the mothly cost of ay loas ad credit card debt. Make sure you budget for home repairs ad maiteace, as well as aual expeses like homeowers isurace ad property taxes. 9

10 Take a hard look at your cash flow Do you have eough moey each moth to pay for everyday expeses? Do you ofte have to tur to savigs or credit cards to meet mothly bills? Do you struggle whe a larger or uexpected expese like a tax bill or a car repair comes alog? Remember that your medical expeses ad eed for help may icrease as your health chages. Cosider your other assets What readily available savigs do you have? If you have other o-cash resources such as stocks, bods, or property other tha your home, how difficult would it be to sell those assets if you eeded moey? Look ito eligibility for govermet assistace If you have very limited fiaces, you may be eligible for help with the costs of care at home, or with other expeses such as prescriptio medicatios, food, ad property taxes. Home equity Home equity is the differece betwee the appraised value of the home ad what you owe o ay mortgages or other debt agaist the home. If you ve owed your house for may years, it could be worth more tha you paid to buy it. If the house is paid off, or if you have a relatively small amout of debt o it, the equity could be more tha you expect. Borrowig agaist the equity i your home could give you extra cash for home modificatios, or help pay day-to-day expeses. A home loa may also be less costly tha borrowig moey at high iterest rates from credit cards. It ca be a very emotioal decisio to tap home equity. May people see their house as a home, ot as a resource to pay for everyday expeses. You may have worked very hard to pay off your mortgage. It may be importat to you to leave a iheritace for your childre. You must balace your desire to preserve home equity with the risk of ot havig eough fuds to cotiue to stay at home. 10

11 You may also wat to talk to your heirs about this decisio. You might fid that your childre would prefer that you use your equity to support your home care eeds ad help you stay idepedet, eve if it meas they receive a smaller iheritace. What Other Housig Optios Do You Have? Livig with a ogoig health coditio ca be hard. You may eed to chage your livig situatio whe you: Caot take care of yourself or maage the home, eve with whatever help is available. Have had several falls or other accidets. Need roud-the-clock assistace (such as i the later stages of Alzheimer s disease). You may ot wat to move because you are afraid of losig your idepedece. However, today there are may attractive housig choices where you ca get the help you eed. Sharig a home with family members Oe optio may be to live with your childre. There ca be may beefits to such a arragemet, for you ad for your childre ad gradchildre. But first, thik about how this will work. How easy would it be to live together? Would it be a pleasure, or a ordeal? Do your childre have room for you? Will they have to make chages to their house, such as addig grab bars or buildig a ramp? Do they have the time ad eergy to provide the help you eed o a daily basis? Who will pay for expeses such as ret? Havig a frak ad detailed discussio with your childre about these issues may spare all of you pai ad coflict later o. 11

12 Seior apartmets ad retiremet commuities Affordable housig for seiors typically cosists of small apartmets that are ope to seiors with low to moderate icomes. Though the space may be small, the cost is also modest, ad far less expesive tha maitaiig a home, payig property taxes, etc. I some cases, rets are based o icome. For those with more fiacial resources, retal retiremet commuities offer a more luxurious idepedet livig eviromet with services ad ameities such as a commo diig room, housekeepig ad laudry services, trasportatio, recreatio programs, etc. Assisted livig I assisted livig, you ca live i a private room or apartmet ad get help with everyday activities. Meals are usually offered i a commo diig area, structured recreatioal activities are offered, ad help with persoal care is provided as eeded. Help is at had 24 hours a day i case of a fall or illess. Although this level of care ca be expesive, some states have programs to help with the costs. Cotiuig care retiremet commuities (CCRCs) Cotiuig care retiremet commuities (CCRCs), or life care commuities, offer a full rage of services from idepedet livig, to assisted livig, to full ursig care. You ca eter the commuity i a idepedet apartmet or cottage, ad the move to higher levels of care as your eeds chage. Most CCRCs are quite expesive, however. Typically, a large iitial paymet is required, ad you may eed to prove that you have eough resources to pay mothly costs for some years ahead. 12

13 Your House As a Resource Oce you decide to cotiue livig at home, ad that you will eed resources beyod your icome ad savigs, the ext step is to explore optios. This sectio describes your choices for tappig home equity. Typically, you would take out a loa that uses your home as the collateral to guaratee that you will repay the loa. To help you decide which optio may be best for you, thik about these questios: Why do you eed the moey ad for how log? What loa optios are ope to you? How much cash ca you get from your house? Are you prepared to tap home equity? The equity you have built up over may years should be used wisely. It is importat that you uderstad the costs, beefits, ad risks of differet types of loas. Why Do You Need the Moey? Sice differet kids of home loas work best for differet purposes, you eed to be clear about how you pla to use the moey. Some homeowers like to pla ahead by takig out a lie of credit. These fuds give them the flexibility to pay for uforesee expeses as they arise. Others wat a lump sum to deal with a specific, oe-time cost such as addig a bathroom or payig off a existig mortgage. 13

14 How log you will eed the loa will also make a differece i your decisio. Are you tappig home equity to solve a immediate, oetime problem? Or will you eed fuds for may years to pay ogoig household expeses? Whe you take out a loa to tap a portio of your home equity, you usually caot use the remaiig equity for other eeds util you pay off the loa. It is importat to look at your overall fiacial situatio, or you may fid yourself stuck with a loa that does t fit your chagig eeds. What Loa Optios Are Available to You? Sigle purpose loas May states ad commuities offer special loas to help older homeowers who are strugglig to live at home. These loas are desiged to meet specific eeds. Borrowers usually do ot eed to make paymets o these sigle purpose loas for as log as they cotiue to live i the home. Home repair ad modificatio loas Borrowers get a oetime, lump-sum loa that pays for the specific repairs or home modificatios that the program allows. Property tax deferral loas These programs allow older homeowers to defer paymet of some or all of their property taxes. The deferred taxes become a loa that is repaid whe the borrower dies or moves out of the house. ADVANTAGES Sigle purpose loas usually cost less tha covetioal home equity loas or reverse mortgages. Some of these loas are forgivable. This meas you may ot have to pay back all of the loa if you cotiue to live i the home for a certai period of time. 14

15 DISADVANTAGES Most programs have age ad icome requiremets. Ofte, oly homeowers with low or moderate icomes ca apply. The moey ca oly be used for oe purpose. You may ot be able to get more moey if eeded later. Home repair loa programs are ofte oe-time oly. The remaiig equity i your home may ot be available to use for other eeds. These loas may ot be available where you live. Covetioal home equity loas ad lies of credit These loas ca be useful if you are usure how log you ca cotiue to live at home or how much help you will eed. Covetioal home equity loas ca also help families who have other assets they do ot wat to sell right away. Util you have a good sese of what s goig o with your health situatio, you ca get extra fuds from these loas without payig large fees or makig drastic chages. There are two types of home equity loas: Home equity lie of credit This loa works like a credit card. You ca borrow up to a certai limit, for a set period of time, such as 5 or 10 years. Durig that time, you ca withdraw moey as eeded, ad may oly be required to pay iterest o the balace. Oce the time is up, you must pay back both pricipal ad iterest withi a repaymet period such as 10 years. Costs to set up these loas may be relatively low. Home equity loa You receive a set amout of moey i a lump sum. You pay off the loa over a set amout of time, with fixed mothly paymets that iclude both pricipal ad iterest. With these loas, you may have to pay poits, appraisal fees, closig costs, ad loa origiatio fees. Closig costs may iclude attorey s fees, fees for preparig ad filig a mortgage, fees for title search, taxes, ad isurace. 15

16 ADVANTAGES If you qualify ad your credit is good, you may be able to get a home equity loa or lie of credit quickly. A home equity lie of credit may have relatively low upfrot costs, compared to refiacig a first mortgage or obtaiig a reverse mortgage. With a lie of credit, you pay iterest oly o the amout you borrow, eve though you may be approved for a larger amout. This makes a lie of credit good for coverig uexpected expeses. A lie of credit ca be good for a short-term eed, such as repairs that eed to be made before sellig the house, sice you may be able to pay iterest oly i the early years of the loa. DISADVANTAGES You may ot qualify for these types of loas. Leders look carefully at your icome, other debt, ad credit history, as well as the amout of equity you have i your home. You must be able to make mothly paymets. If you ca t make these paymets, you could lose your house, just as you would if you did t keep up with your first mortgage. Whe the time is up o your lie of credit, you must start payig off the etire loa balace, ot just the iterest. This meas that you may suddely have a much larger mothly paymet to make. You ca t cout o beig able to reew the lie ad keep o borrowig. Usig a covetioal home equity loa or lie of credit to solve cash-flow problems ca be risky. If your health declies, mothly loa paymets alog with other expeses may become more tha you ca hadle. 16

17 Reverse Mortgages If you expect to live i your curret home for several years, you could cosider a reverse mortgage. Reverse mortgages are desiged for homeowers aged 62 ad older. These types of loas are called reverse mortgages because the leder pays the homeower. The moey you receive from a reverse mortgage is tax-free, ad ca be used for ay purpose. Ulike covetioal mortgages, you do ot eed to make ay mothly paymets o a reverse mortgage for as log as at least oe borrower cotiues to live i the home. However, you do eed to keep payig taxes, isurace, ad upkeep o the house. Durig the time you have the loa, the leder charges iterest ad adds it to the amout you borrowed istead of makig you pay it mothly. This meas that the amout you owe gets bigger ad bigger, the loger you have the loa. Whe the last borrower moves out of the home or dies, the loa becomes due i full, icludig the amout you borrowed ad the iterest that was added, as well as iterest o the iterest. The loa is usually repaid by the borrower or their heirs through sellig the home. There are two types of reverse mortgages available i the market. These iclude: Home Equity Coversio Mortgage (HECM) This program is isured by the Federal Housig Admiistratio, a govermet agecy that is part of the U.S. Departmet of Housig ad Urba Developmet (HUD). Ledig istitutios, such as mortgage compaies ad baks, offer these loas, followig rules set by HUD. These are the most popular reverse mortgages, represetig about 95% or more of the market. Proprietary reverse mortgages Some baks, credit uios, ad other fiacial compaies may offer reverse mortgages that are ot HECMs. These loas are usually desiged for people with very high-value homes. Because proprietary loas may vary so much i their terms, the followig iformatio is focused oly o HECM loas. 17

18 Features of Home Equity Coversio Mortgages (HECMs) Loa amouts The maximum amout of moey available (called the pricipal limit ) is based o three thigs: Value of the home, as determied by a HUD-approved appraiser, up to a atiowide limit that may chage from year to year. Owers of very high-value homes may ot be able to borrow agaist the full value of their property. Age of the yougest borrower (or spouse, if the spouse is youger). At least oe homeower must be aged 62 or older. Older borrowers receive more moey, because leders iclude life expectacy i calculatig loa paymets. If there is a spouse who is ot yet 62, they may ot be a borrower o the loa, ad may have to be removed from the title to the home util after closig. However, their age may still affect the amout of moey available. Iterest rate offered. Ways to get moey Borrowers may be able to receive loa advaces (paymets from the leder) i several ways. A lie of credit allows you to borrow moey as eeded, up to a set limit. Ulike a covetioal home equity lie of credit, the HECM lie of credit does ot have a time limit ad does ot require you to make iterest paymets. Two kids of fixed mothly optios are available a loa advace every moth for a specific period of time, or a loa advace every moth for as log as you live i your home. You also ca combie a lie of credit with a mothly optio. You are o loger allowed to borrow all of the loa moey at oce at the begiig of the loa (lump sum), uless it is to pay off a mortgage or some other madatory obligatio. 18

19 While there is o restrictio o what you do with the moey, there ca be limits o how much moey you are allowed to receive i the first year. Uless you have a large mortgage to pay off or are buyig a house with a HECM, you will probably be able to borrow o more tha 60% of the total loa amout (pricipal limit) i the first year. What ca a HECM be used for? The moey that is available to you from the HECM is first used to pay off ay other loas agaist the house. After that, you ca use the rest of the moey for ay purpose you choose, icludig livig expeses, home repairs ad modificatios, home care expeses, payig off other debts, payig property taxes, etc. You ca eve use a reverse mortgage to purchase a ew home, which might help you dowsize to a house that suits you better or is closer to family. Costs of a HECM Loa closig costs for a reverse mortgage are mostly the same as what you would pay for a traditioal forward mortgage. You ca fiace these costs as part of the mortgage, which meas that you do t have to pay them out of pocket. These fees iclude a origiatio fee, appraisal, ad other closig costs (such as title search ad isurace, surveys, ispectios, recordig fees). HECM borrowers also pay a mortgage isurace premium that covers FHA isurace. Eligibility for HECM loas All homeowers must first meet with a govermet-approved reverse mortgage couselor before their loa applicatio ca be processed. This is to esure that borrowers get objective iformatio from someoe who will ot profit from the loa. 19

20 Also, the home has to be i good coditio ad must meet HUD stadards. Ay existig mortgage or other debt o the home must be small eough to be paid off usig the HECM fuds. Ulike a covetioal home equity lie of credit, you caot have a HECM i combiatio with aother kid of home loa. Fiacial assessmet for HECM borrowers Ulike stadard home equity loas, eligibility for HECM loas is ot primarily based o credit history, although the leder will check your credit report. Leders ad HUD are primarily tryig to make sure that you as the borrower will be able ad willig to keep up your ed of the bargai payig the property taxes ad isurace, ad keepig the house i good coditio. The most importat factors will be whether you have paid your taxes o time ad kept the home isured. The leder also may cosider whether you have cosistetly paid other bills o time. I additio, they will look at your icome ad expeses to see if you have eough moey to live o ad still pay your property taxes ad isurace. If the leder sees evidece that you have had trouble payig your taxes ad isurace i a timely way, or that you do t have eough icome to cover your regular mothly expeses, they may require what is called a set-aside. A set-aside meas that the leder holds back part of the moey from your loa, so that it ca be used solely for the purpose of payig your taxes ad isurace. I some cases, they may require that eough moey is set aside to cover your taxes ad isurace for your etire life expectacy (a umber of years that is a estimate of how log you will live based o how old you are whe you get the loa.) This ca add up to a lot of moey, especially if you are relatively youg or live i a place with high taxes. These fiacial assessmet rules wo t cause you ay problem if you have always paid your taxes, isurace, ad other bills o time, ad you have eough icome to cover your livig expeses ad debts. However, if you have bee strugglig to pay bills, especially taxes ad isurace, or your icome is very low, you may ot be able to get a HECM loa because you do t have eough equity to cover the required set-aside. If you are able to get a HECM, some of your loa moey may have to be reserved to cover your future taxes ad isurace. 20

21 ADVANTAGES Eve with the fiacial assessmet, credit requiremets for a HECM are less strict tha for stadard home equity loas ad lies of credit. Iterest rates are ot based o credit history. There is o time limit o how log you keep the loa before you have to pay it off. The fuds available from a HECM lie of credit ca icrease over time, depedig upo iterest rates. If you had a mortgage before gettig the HECM, that mortgage will be paid off ad you will ot have to make ay more mothly paymets. This gives you more moey to live o. There are o mothly paymets to make o the HECM, as log as at least oe borrower lives i the home. You cotiue to ow your house ad ca ever be forced to leave, as log as you keep the home i good coditio ad pay your property taxes ad isurace. You (or your heirs) will ever have to repay more tha the value of the home if you sell the property to repay the loa, eve if the value of your home goes dow. A resource for payig Property Charges such as taxes, hazard isurace ad HOA fees etc. 21

22 DISADVANTAGES Closig costs for a reverse mortgage ca add up to a large amout. Although closig costs ca be fiaced ito the loa, this uses up a portio of your equity. This is oe reaso why a HECM is best used as a loger-term plaig tool. If you already have a large mortgage, you may ot be eligible for a HECM, because the HECM loa must be large eough to pay off the old mortgage i full. HECM loa amouts are ot allowed to be as large as forward mortgage amouts, compared to the total value of the house. You have to be at least 62 to get a reverse mortgage. If there are two married homeowers ad oe is youger tha 62, that perso will have to be what is called a o-borrowig spouse. If the older spouse dies, the youger, o-borrowig spouse might still be able to live i the house, but they will ot be able to get ay more moey from the HECM. Talk to your leder for more details. Because iterest ad mortgage isurace are added to the loa istead of beig paid mothly, the amout you owe gets larger ad larger. This process may use up a large part of your home value over time. As a result, you may have less to leave as a iheritace to your family, or less to keep if you later wat to sell the house ad move somewhere else. Existig mortgage + Cash out for expeses = New reverse mortgage Your equity Existig loa Your equity New loa Iterest + fees Your equity Risig loa balace Cash for expeses Graphic courtesy of the Cosumer Fiacial Protectio Bureau 22

23 If you are the oly homeower ad you stay i a assisted livig or ursig facility for more tha a year, you will be required to repay the balace of the loa (usually doe by sellig the house). Reverse mortgage borrowers must keep their homes i good repair, ad pay property taxes ad homeowers isurace. If you do ot have eough moey for these expeses, you could face foreclosure ad lose your house. Failure to keep property charges curret ca result i the leder foreclosig o the property. Remember it is ultimately the homeowers resposibility to esure that all property charges are kept curret. Life expectacy set-a-sides will assist i that, but it s the homeowers resposibility eve after those fuds are fully expeded. How Much Cash Ca You Get From Your House With a Reverse Mortgage? A HECM loa allows you to borrow a percetage of the value of your home, based o the borrower s age ad the iterest rate. To get a sese of how much moey you may be able to get from a reverse mortgage, use the simple, olie calculator at Remember, though, oly a leder ca tell you for sure how much you qualify for, because iterest rates chage frequetly, ad your estimate of your home value may ot match that of a appraiser. The coditio of the home also may determie how much cash you will be able to receive ad whether you ca get the HECM at all. The house eeds to be i good repair to qualify for a reverse mortgage. Reverse mortgage examples Let s cosider the situatio of four borrowers who each take out a adjustable rate HECM reverse mortgage. Each borrower lives i a house that is i good repair ad worth $200,

24 Bill Smith (age 63) recetly retired ad has bee strugglig to pay his curret mortgage. Bill receives over $95,000 from a HECM reverse mortgage. This pays off his existig mortgage, ad frees up extra cash for mothly expeses. However, this uses up all the available fuds from his HECM, so he eeds to budget carefully to pay property taxes ad isurace each year from his icome. He also has to pla ahead, because iterest charges add up over time, which could leave him with little or o home equity if he later eeds to sell ad move. Joe ad Liz Aderso (ages 75 ad 73) built their 2-story dream home after retirig. Recetly, Joe had a mild heart attack ad he ow has difficulty climbig the stairs. Based o Liz s age, the Adersos ca get about $113,000 from their reverse mortgage. They take $20,000 of the loa to istall a stair lift, elarge the dowstairs bathroom, ad make other home modificatios. They keep the rest ($93,000) i a lie of credit for future eeds. If they eed it, they ca get up to about $45,000 more the first year, ad the remaider later o. I the meatime, that lie of credit will get a little larger every moth, makig eve more moey available for future eeds. Melba Joes (age 83) has lived i the same tow all her life. She kows she ca rely o family ad frieds for help with the yard work ad housework that she ca o loger do. Her big cocer is usig up all her retiremet fuds too soo. She ca receive early $130,000 from her HECM loa ad chooses a teure (mothly) paymet pla. Based o her age, this pla provides a guarateed $1,000 loa advace every moth for as log as she stays i her house. This gives her peace of mid, kowig that she ca pay for extra expeses ad wo t be a burde to her childre. Richard ad Rebecca Brow (ages 63 ad 53) have joit owership of their home, which they ow free ad clear. They have bee strugglig to get by o Richard s Social Security sice Rebecca got laid off from her job last year, ad they have bee late with their property tax ad isurace paymets, as well as other bills. Their HECM loa amout is based o Rebecca s age, eve though she is uder 62 ad will be treated as a o-borrowig spouse. They ca receive about $85,000, 24

25 ad the leder will set aside some of these fuds to cover their taxes ad isurace. The remaider will be available i a lie of credit, which they ca use to supplemet their icome util Rebecca gets a ew job. If Richard dies, Rebecca may be able to cotiue livig i the house if she ca establish owership, but, because she is ot a borrower, she will lose access to the lie of credit. Are You Prepared to Tap Home Equity? Whether you are cosiderig a sigle purpose loa, a covetioal home equity loa or lie of credit, or a reverse mortgage, chaces are that it will take time to get the equity i your home. Pla carefully to make sure that these fuds will be available whe you eed them. The followig problems could slow the process. Title to the home Uderstad who ows the home. If you have added childre or gradchildre to the title, you will eed their cooperatio to make title chages that would allow you to apply for a reverse mortgage. If oe homeower is uder age 62, they also may have to be removed from the title util after closig. All borrowers must live i the home ad be eligible for the reverse mortgage. Home repairs If major repairs are eeded, this work may eed to be doe before you ca get a reverse mortgage. It ca take several moths to fid a good cotractor, get the ecessary permits, ad complete the job. Legal competecy issues If oe or more homeowers suffers from memory loss, demetia, or other problems with thikig ad memory, they may ot be legally able to sig loa documets. Make sure a spouse, adult child, or trusted fried has a durable power of attorey that icludes real estate. This allows your family or fried to make decisios if you caot do so. I some cases, a guardiaship may have to be put i place. Moey maagemet problems If you have a history of problems with payig bills o time, if you owe moey to the federal govermet, if you have bee late payig your property taxes, or if you have let your homeowers isurace lapse, you may have to do some work to become eligible for a reverse mortgage. 25

26 Govermet Programs Govermet programs provide a importat safety et. They help older Americas who have limited fiacial resources, ad who caot pay for help at home. Several public programs help older people cope with a ogoig health coditio. If you qualify for these programs, you may ot eed to use your home equity. Medicaid Medicaid is a joit federal-state program that provides health isurace for may low-icome Americas. It also pays for log-term care for older ad disabled people with low icomes ad resources, ad those who have high health care expeses. Medicaid may cover persoal care aide services, home health care, adult day programs, ad ursig home care. The covered services ca vary by state. To qualify for Medicaid, you must meet the icome ad asset requiremets i your state. To get help at home, you also eed to have a serious physical or metal coditio. The rules for Medicaid eligibility are complicated ad vary from state to state. Takig out a home loa may affect your eligibility for Medicaid or other programs that are based o icome ad resources. To lear more, talk to a seior services couselor, social services agecy, or kowledgeable fiacial advisor. 26

27 Departmet of Veteras Affairs (VA) The VA provides log-term care services primarily to veteras with a service-related disability, low-icome veteras, ad former prisoers of war. Veteras may be eligible for ursig home care, assisted livig, or help at home, icludig respite care, homemaker services, home health care, or adult day care, as well as home modificatios such as ramps. If you are a vetera, you ad sometimes your spouse may receive low-cost care i state veteras homes. You also may be able to pay for home repairs ad modificatios by refiacig your house with a low-cost VA loa. Medicare Medicare, the atioal health isurace program for seiors, maily covers medical care (doctors ad hospitals), rather tha log-term care. Uder limited circumstaces, it will pay for a home health aide, but oly while you get skilled ursig care or rehabilitatio therapies at home. Oce you o loger eed skilled care, Medicare will stop payig for home health care. This is true eve if you still eed help with everyday activities. 27

28 Other Resources to Help You Live at Home Your local Area Agecy o Agig offers a wide array of services. These ca iclude help with household chores, meals served i commuity locatios or delivered to your home, adult day care programs, caregiver support, seior ceters, protective services, ad legal help. Iformatio ad couselig to help you fid ad access the services you eed are also provided. You may be able to get these programs free or at very low cost. May commuities also provide low-cost services so that seiors ca cotiue to live at home. These programs may iclude special trasportatio programs, friedly visits or telephoe checks to seiors who live aloe, light housekeepig, ad help with home modificatios or repairs. Faith-based orgaizatios ad charities also ca help. 28

29 Where to Go for More Iformatio BeefitsCheckUp is a quick, cofidetial, ad free web service that helps you fid federal, state, local, ad private beefit programs for which you may be eligible: Eldercare Locator ca help you fid services ad programs i your area: Call or check the web at The Fall Prevetio Ceter of Excellece offers tips o how to check if homes are safe for elders ad how to pay for home modificatios: The Family Care Navigator ca help to fid resources for families who are carig for a loved oe: The Cosumer Fiacial Protectio Bureau s Ask CFPB website provides aswers to may cosumer questios about reverse mortgages: The Natioal Reverse Mortgage Leders Associatio has cosumer publicatios ad a reverse mortgage calculator. Visit 29

30 Tips for Older Homeowers Look at the big picture Your ability to live at home is likely to chage over time. It is importat to look at your fiacial situatio beyod what you eed right ow. Short-term solutios could be risky if you require ogoig fuds for several years. It helps to save some of your home equity so you have the optio of movig to a better livig situatio. Do t wait util the last miute Timig is critical whe makig decisios about the home. You or your family could ed up facig a serious cash cruch if you wait util a crisis to start thikig about how to tap home equity. To avoid stress, disappoitmet, ad costly delays, pla i advace. The loger you wait, the harder it ca be to fid a good solutio. Have ready cash for emergecies It helps to have a three-moth emergecy fud of cash you ca access easily, such as a moey market accout or short-term certificate of deposit. If this is ot possible, make plas ad prepare for how you would pay for a emergecy. If you ru short, use credit cards sesibly. Beware of ayoe who offers a quick fix to your fiacial problems. 30

31 Create a family budget A sudde chage i health ca disrupt the best laid fiacial plas. You will eed to moitor your fiaces each moth to keep family affairs ruig smoothly. The best way to uderstad your family s cash flow eeds is to create a budget. Talk to your family It ca be hard to discuss persoal fiacial matters. However, good commuicatio ca brig a family together ad reduce cofusio. Talk with family or other heirs before takig out a reverse mortgage loa. They will eed to pay off the loa balace if they wat to keep the house. However, remember that the fial decisio is yours. Do t rush ito ay decisio If you decide to take out a home loa, weigh all the optios to fid the best solutio for you. Shop aroud with differet leders to check that the iterest rate ad fees are competitive ad fair. Oly sig papers that you uderstad. Ask questios if you are cofused. Get help from a trusted family member or fried who uderstads fiacial matters. Agecies that offer reverse mortgage couselig ca give you idepedet iformatio. The oly time you eed to act quickly is if you have already siged a loa cotract ad the chage your mid. Federal law gives you three days to get out of a reverse mortgage or home equity loa cotract. You may cacel the loa for ay reaso, but you must do it i writig withi three days. 31

32 Notes 32

33 Notes 33

34 Notes 34

35 About NCOA The Natioal Coucil o Agig (NCOA) is a respected atioal leader ad trusted parter to help people aged 60+ meet the challeges of agig. Our missio is to improve the lives of millios of older adults, especially those who are strugglig. Through iovative commuity programs ad services, olie help, ad advocacy, NCOA is parterig with oprofit orgaizatios, govermet, ad busiess to improve the health ad ecoomic security of 10 millio older adults by Lear more at coa.org 2015 Natioal Coucil o Agig. All Rights Reserved.

36 251 18th Street South, Suite 500 Arligto, VA