Long term care and reverse mortgage

Laurie MacNaughton © 2019

It’s just a fact: unless we drop dead, many of us will experience significant long-term care costs.

This fact is not lost on most Americans, and it leads us to consider long term care insurance. These policies cover the cost of in-home care or assisted living, typically for a defined number of years.

For some aging homeowners the fear – or risk – is that they will purchase a policy they will never need. And because these policies ain’t cheap, this fear is understandable. However, over the past few years long-term care/life-insurance “hybrid” policies have entered the market. These largely eliminate the financial risk of some older long-term care options.

Here’s how they work: if you don’t end up needing the full payout for your long-term care, the insurance company pays your beneficiary a benefit when you die.

Some policies are paid through monthly or annual payments, while others are paid in one lump sum – one hefty lump sum. But more about that in a minute.

There is a mind-blowing array of options, and as I am not an insurance agent, nor do I carry any insurance licenses, I will not attempt to lay out either the various products or their merits. I do have a list of highly-qualified, local professionals if you’d like to explore your options.

I can, however, definitively say this: increasingly calls come into my office both from homeowners and from homeowners’ financial advisors who are exploring ways to fund long-term care insurance. And more and more frequently they are turning to a reverse mortgage as a means of covering premiums.

Why? It’s simple. A long-term care policy creates a bucket of money that contains many times the dollar amount paid in. But as I mentioned, a policy can be pricey.

A reverse mortgage, which is a home equity loan much like any other, can provide funds for a long-term care policy without saddling the homeowner with a monthly mortgage payment. Because a reverse mortgage is a loan, it will be repaid – but not until the last person on title permanently leaves the home. At that point the heirs either sell the home or repay the debt and keep the home.

Many years ago I mindlessly said to a client, “Getting old is hard.” He replied, “No, getting old is easy. Paying for it is hard.”

Touché. Finances are the hard part.

There is never a one-size-fits-all financial product – including long-term care insurance or a reverse mortgage. Financial needs vary and every homeowner’s circumstances are a bit different.

But this much is certain: none of us is likely to get by on just our Social Security. Few will survive on just an IRA, a 401(k), or pension – or, for that matter, on a reverse mortgage. However, a reverse mortgage often plays a very important role in asset longevity, and when added to other resources can contribute to long-term financial health in the retirement years.

If you would like to discuss your financial needs, or those of a loved one, give me a call. I always love hearing from you.

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Make it easier for those of us who still believe

Laurie MacNaughton © 2019

I am not much into rebutting the demonstrably incorrect things I read or hear about reverse mortgage. Unless, that is, the source is a mainstream newspaper that really should know better.

I get it: times are hard at the large papers, and what with staff cutbacks, summer vacations, and the ever-popular topic of “reverse-mortgages-are-of-the-devil,” it’s hard to resist a slam piece about reverse mortgages. Even if you have to skew the facts. Even if you ignore widely-available federal code that governs the FHA reverse mortgage program. And even if you’re USA Today and have a reputation to uphold.

I am, of course, referring to this week’s piece entitled, “Seniors were sold a risk-free retirement with reverse mortgages. Now they face foreclosure.”

So extensive are the outright errors in the piece, and so slanted is the coverage, that it’s hard to know where to start. So let me just point out the following: foreclosure for failure to pay property taxes may occur whether a homeowner has a “forward” mortgage, a reverse mortgage, or NO mortgage at all. Taxes are simply a cost of homeownership.

Furthermore, any home with a mortgage also must have homeowner’s insurance. This is not unique to a reverse mortgage; rather, insurance, too, is simply a cost of homeownership. Failure to afford taxes and insurance is not a “failed” reverse mortgage – it’s a failure to afford the costs of homeownership. Don’t get me wrong here: this is not “failure” in some guilt-slinging moral sense; it’s simply a financial assessment.

The article also fails to address what would have become of the low-income homeowners highlighted if they had not received funds from their reverse mortgage. Where were the adult children of these aging parents when the parents were in financial need? It may be the children were financially unable to help – but assuming that to be the case, the children benefitted greatly from having parents remain financially self-sufficient for as long as possible.

But by far the biggest disservice of this piece is its failure to point out that many jurisdictions across the nation have property tax waiver programs for the elderly and disabled. How is it this critically important information was not communicated during the discussion?

I will be the first to say a reverse mortgage is not right for everyone. If you simply cannot afford the costs associated with homeownership, it may indeed be time to sell and look at other housing options. Maybe it’s time to move in with an adult child, to houseshare with a friend, or to move to a less expensive part of the country. But waiting until the taxman is at the door is not…ideal.

As a complete aside here, not long ago I read a Monmouth University poll that stated three out of four Americans believe the press routinely reports fake news. If this is true, I squarely fall in the minority. I generally trust the mainstream news.

Consequently, I will say this: in an era of misinformation and widespread yellow journalism, and amid frequent allegations of “fake news,” never has it been more important for the press to get it right. Shoddy reporting by mainstream media just fuels allegations of a “Lügenpresse,” a lying press. So please, do your homework and just get it right. Make it easier for those of us who still believe.

But back to the topic at hand. No amount of financing – or refinancing – is singlehandedly going to meet the costs associated with aging. In fact, very few will survive on just a bank account, a 401(k), a pension – or on a reverse mortgage. But when added together, all these can contribute to financial health in retirement, particularly when used as part of a sound, long-term retirement plan.

If you have questions about reverse mortgage, give me a call. I always love hearing from you.

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The rope and the cow

Laurie MacNaughton © 2019

Many years ago a friend of mine named Alan, who had spent more than a decade working in Africa, told me this story: a boy came to Alan to say he had found a rope. Alan told him to fetch the rope and when the boy returned, tied to the rope was a cow.

The real issue was the boy had found…a cow.

While none of us may have issues either with ropes or with cows, here’s what we often do have: small problems that are tied to much bigger problems.

This past week I met with a couple who thought they were having cash-flow issues due to in-home health care costs. And here’s the thing: they are having cash-flow issues.

But that’s not all they have. They also have accessibility issues and, perhaps most of all, estate planning issues.

Money was the biggest felt need – it is the rope. The other issues are the cow.

And cows can sneak up on us. In the case of my clients, the wife is 14 years into an MS diagnosis and the husband, until this past year, was her fulltime caregiver. However, he now is undergoing chemotherapy and can no longer adequately care for her. They have legal documents, but they are critically outdated. Case in point: the couple’s Power of Attorney states their son will make medical and legal decisions for them if they become incapacitated. However, 10 years ago he died in a car accident on I-66.

Life is filled with the unexpected. We all know that. We also know no amount of planning will cover all life’s curve balls. But planning goes a long way toward protecting ourselves and those we love best when the unexpected occurs.

As a reverse mortgage specialist I frequently meet with people who are planning ahead for the unexpected, as they understand that long-term illness, a major accident, or the death of one spouse might well put them financial jeopardy. It’s not that my clients haven’t saved; most of them have both savings and investments. Rather, they have done the math and realize that with care costs often running some $10,000 per month, they eventually are going to need every financial resource available.

And here’s why a reverse mortgage can uniquely fit long-range financial plans during retirement: each month a small amount gets added to a reverse mortgage line of credit. This growth compounds over time, and is not based upon home appreciation, but rather upon prevailing interest rates. It’s counterintuitive, but if rates go up, the line of credit actually grows more quickly.

I will be the first to say there is no one-size-fits-all financial product. Financial needs vary and every homeowner’s circumstances are a bit different. So are long-term financial goals.

But this much is certain: none of us is likely to get by on just our Social Security. Few will survive on just an IRA, a 401(k), or pension – or, for that matter, on a reverse mortgage. But when added together, all these can contribute to financial health in retirement, and a reverse mortgage can play a very important role in financial wellness in the retirement years.

If you would like to discuss your financial needs, or those of a loved one, give me a call. I always love hearing from you.

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Can we refinance using another reverse mortgage?

Laurie MacNaughton © 2019

“My wife and I took out a reverse mortgage a few years back. Can we refinance using another reverse mortgage?”

It’s a question I get at least a couple times a week, and the answer is…“maybe.”

The reason there is no perfunctory answer is for the much same reason there’s no one-size-fits-all answer when it comes to other home loans: it depends upon the value of the home and upon how much is owed on the loan you currently have.

As I venture into an explanation, a brief word of review becomes necessary.

A reverse mortgage is simply a home equity loan, in many ways like any other home equity loan. The biggest difference is that the loan is not repaid on a monthly basis; rather, the loan typically is repaid in one lump sum on the back-end, in reverse, when the home is sold.

The loans we all grew up with are repaid monthly in a forward direction, and for this reason they are technically called “forward” mortgages. Yup. That’s the real terminology.

With a reverse mortgage the amount a homeowner can borrower is a function of five things: the age of the youngest homeowner; the value of the home; interest rates; current lending limits; and the specific reverse mortgage program one selects.

And here’s where we get back to the question at hand, namely whether homeowners with a reverse mortgage can refinance using another reverse mortgage.

The first calculation is a given – if a couple did a reverse mortgage 5 years ago, they are now…5 years older. The older the homeowners the more they qualify for, so age works in their favor.

The second factor, home value, may also be in their favor, as many of our homes have appreciated nicely over the past few years. This is not a given, of course, and a new home appraisal is always required.

Interest rates have remained fairly stable, even with recent rate hikes, especially when viewed from an historical perspective.

The fourth element, or lending limits, may also be in the homeowners’ favor, as FHA announced higher lending limits in late 2018.

The final factor, namely product type, is currently proving the most interesting. New “flavors” of reverse mortgage have come onto the market, with more due out in 2019, and they are filling a niche long underserved. Homeowners in higher-value homes may benefit from some of these new offerings.

All this said, the determining factor in whether a reverse-to-reverse refinance will work ultimately boils down to how much is owed on the current reverse mortgage. If homeowners qualify for more than is due on their current reverse mortgage, a refinance may be possible.

As an aside, it always bears mentioning: because homeowners retain title to the home – in other words, because they still own the home – property taxes, homeowners insurance, routine maintenance, and other applicable responsibilities such as condo fees or homeowner association dues are still paid by the homeowner. Homeownership is homeownership, and nothing changes in this regard.

If you would like to explore the possibility of refinancing, give me a call. I always love hearing from you.

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Triple whammy: the gender wealth gap in retirement

Laurie MacNaughton © 2019

Here’s what I’m not going to address, except in passing: the wage gap between the sexes. Why? It’s not because I doubt its existence. Rather, it’s because for most retirees the peak earning years are past, and they are now drawing down savings and investments.

What I am going to address, however, is the wealth gap between men and women during the retirement years.

Meet Rosemary, a woman who has spent her entire adult life caring for loved ones – first her profoundly handicapped brother, and then her Alzheimer’s-afflicted mother. When her mother died last year, Rosemary started looking for a job. At age 66. With no official work history. We’ll come back to Rosemary in a minute.

Retirement income typically consists of investments, savings, and, for most Americans, Social Security. In fact, information published by the Social Security Administration states half of retirees rely upon Social Security for 50% of their income; one in five relies upon Social Security for 90% of his or her income.

But here’s the catch: didn’t work 35 years? You’re not getting maximum benefits no matter how much you earned during the working years, unless you qualify for a spouse’s, or former spouse’s, benefits.

And if you never worked, as in Rosemary’s case – or if you worked fewer than 10 years – you may fall into a group called “never beneficiaries.” People in this category may qualify for no benefits at all, unless they can claim benefits through a spouse or former spouse.

To reiterate, there are two important numbers to understand: first, you have to work at least 10 years to qualify for Social Security benefits. Second, your monthly Social Security payment will be based upon your 35 highest-income years.

Women disproportionately represent never-beneficiaries because they step out of the workforce far more frequently than do men in order to care for children or elderly relatives, and no amount of curing the wage gap during the working years is going to fully close the wealth gap during the retirement years for these women.

For some women it’s a triple whammy: fewer years worked, lower wages paid during those working years. Add to this the fact women, on average, live longer, and you start to see the magnitude of the problem.

So, what are some cures for women already of retirement age? That can be tricky one, as working is simply not possible for some older citizens. However, for those who can work, even a small income can make a big difference. Also, I am a huge believer in the role faith-based organizations play in a community, as well as the effectiveness of service organizations and other non-profits. Some groups will assist the elderly with smaller home repairs, and many offer other forms of assistance. Many of our local jurisdictions have shuttle services for those needing transportation.

And what about prevention? There are many, many things we could do better, but following is some very low-hanging fruit. First, we must offer financial education early enough in life for it to have a meaningful impact. It does no good to start talking to people about retirement finances when they’re so close to retirement age they have no hope of working a minimum of 10 years. Second, we need to reexamine the wage gap and the many, complex reasons it still exists. And we need to take a very close look at things that are working, such as recent legislation passed in Oregon, whereby employees are automatically enrolled in Roth IRAs.

As for Rosemary, she is doing well. She had the great blessing of inheriting her mother’s home, and was able to do a reverse mortgage to help with her finances. She works as a cashier at a local grocery store, and has qualified for basic health care coverage through her employer.

Many of us, at one time or another, have turned to family for childcare or for eldercare. Twice I myself served as the primary caregiver for aging or ailing family members, and feel blessed to have had that privilege. However, circumstances were such that I was able to step back into the workforce. Not everyone is that fortunate. But I believe we, as a nation, ought to insist upon having this complex discussion.

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New year, exciting new options in retirement financing

Laurie MacNaughton © 2019

His name is Richard, and his question to me was the following: “If my paid-off home is worth $900,000, why do I only qualify for some $220,000 in a lump sum with a reverse mortgage?”

Not only is this a great question, but it’s also a very common one. The answer, however, involves a few basics facts about how a reverse mortgage works.

First, the amount of equity homeowners qualify for is based upon age. More specifically, the loan amount is based upon the age of the youngest homeowner. Second, just like with any other home loan, a reverse mortgage is impacted by interest rates. And third, the amount one qualifies for differs according to the “flavor” of the reverse mortgage the homeowner selects – traditionally there have been two basic types, either a fixed rate or an adjustable rate.

Over the past few months, however, a plethora of other reverse mortgage offerings have come onto market. These loans, sometimes called “jumbo” reverse mortgages, are proving true game-changers for homeowners in higher-valued properties.

Which leads me to my conversation with Richard.

Richard initially enquired about a fixed-rate, FHA-insured reverse mortgage. Until very recently virtually all reverse mortgages were Home Equity Conversion Mortgages, or HECMs. But the HECMs are not always ideal for those in higher-valued homes.

Jumbo reverse mortgages are designed to meet needs of borrowers in homes valued up to $4,000,000. These non-FHA loans have some distinct advantages, with the most prominent being the following: at Richard’s age (78), he currently qualifies for some $430,000 at closing. Because he is looking to establish a special needs trust for an adult handicapped child, the larger amount available may better fit his goals. Second, closing costs on these loans are notably lower than those of an FHA-insured reverse mortgage. And third, at least one of these new offerings is available to homeowners aged 60 or older, rather than 62.

At the time of publication of this post, the new reverse mortgages were not yet available in Virginia as lines of credit. This means the full amount must be taken at closing.

Just like with other reverse mortgages, homeowners must continue to pay their property taxes, homeowners insurance, and other applicable property charges such as homeowners association fees or condominium dues.

I am the first person to say a reverse mortgage is not right for everyone. No one financial product is. However, a reverse mortgage can be an important addition to many homeowners’ long-term financial plans.

No one is likely to get by just on Social Security. Few will survive just on an IRA, a 401(k), or pension – or, for that matter, on a reverse mortgage. But when added together, all these contribute to financial soundness.

For more information about how a reverse mortgage may help with your retirement financing, give me a call. I always love hearing from you.

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A little planning can be a big gift

Laurie MacNaughton © 2018

Charles, sweet-tempered and kindly, sat in my office fidgeting with a ballpoint pen.

“My mom has never really been herself since her fall, and I found out she was having money problems only after I came across a delinquency notice for her property taxes. By the time I opened her bills, she was late on everything – mortgage, taxes, utilities, you name it. I need to negotiate with creditors on her behalf but she never drew up a power of attorney, so now I’m not sure what my options are.”

In my role as a reverse mortgage lender I’ve met with hundreds of aging homeowners and their families. I’ve seen homeowners who have planed extensively for their retirement years, and I have seen homeowners who have done very little planning. I have seen couples who saved extensively, but because they have lived 25 years longer than anticipated, their savings are running out. And then there are the couples who did everything right, but because they were financially assisting a loved one, they depleted their savings much more quickly than they ever imagined. And that scenario can be a huge bummer.

Following are some basic preparations to make before a crisis arises.

The first step is to record administrative information on one master list. Include on this list:

  • The name of your banks and other financial institutions;
  • The name of your pension plan, life insurance plan, investment accounts, CDs, health savings accounts and the like, along with account numbers;
  • All income sources, including Social Security, annuities, veteran’s benefits and the like;
  • All financial obligations, including credit cards, mortgages, car payments, and utilities, along with the names of the utility providers;
  • Usernames and passwords for your online accounts;
  • Copies of driver’s licenses, social security cards, healthcare cards, birth certificates, divorce decrees, death certificates and the like;
  • The names of primary care physicians over the past 10 years. Current physicians may well be different than the ones used in years past, and it can become important to have contact information for previous doctors.

The second step is to meet with an attorney regarding the following documents:

  • Power of Attorney;
  • Will;
  • Advance medical directive;
  • HIPAA release.

If these documents already exist, make sure they’re up to date.

Once you have collected this information, put it in a safe and secure place – and let a responsible party know where the documents are. Preparation is only helpful when the right person knows how to find the information.

In a utopian world there would be no aging, sickness, disability, or financial hardship. But in this world that is our lot, a little planning can be the most loving gift you can give your heirs – not to mention the fact that planning ahead can save thousands of dollars in legal fees should adult children need to become a parent’s legal guardian.

If you would like to look into how an FHA-insured reverse mortgage might help with your family’s financial goals, give me a call. I always love hearing from you.

For a printable version of this checklist, click here: A little planning can be a big gift – checklist.

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