"The National Council on the Aging wants us to observe this week as "National Aging in Place Week." It's a public relations gimmick, of course, organized by the reverse mortgage lending industry, which provides financial support for the nonpartisan council.
But they raise a legitimate issue, for if you're an older American homeowner of modest means, it's getting tougher to remain in your home. And "aging in place" - staying in the home you've paid for or the retirement condo you've moved into - has become a mantra for older Americans determined to avoid a nursing home.
The squeeze on the middle-class homeowner is getting tighter. Next year's 4.1 percent Social Security cost- of-living raise won't keep up with the soaring costs of home heating fuel, gasoline and health care. And with Medicare charging higher fees and facing competition from private insurance in the new drug bill, our only national health insurance program for the disabled and elderly is becoming unaffordable.
As a result, the council on the aging NCOA is leading a campaign to popularize something I've been pushing for years: using the equity in your home to help keep you in your home with an FHA-guaranteed reverse mortgage. To that end, the council has published a couple of well-written booklets on how to "Use Your Home to Stay at Home." They can be downloaded from
http://www., or ordered from NCOA, 300 D St. SW, Suite 801, Washington, D.C. 20024.
"Many seniors and their families are looking for creative ways to pay for the assistance they need, so they can stay in their own homes and remain independent for as long as possible," said James Firman, who runs the council. Yet their greatest asset, their home equity, remains idle.
One survey by the council found that more than 13 million older Americans could use a reverse mortgage to help pay for long-term care at home. But few have applied.
Members of Congress and several governors, eager to save Medicaid money, have been considering incentives to encourage the use of reverse mortgages. A crackdown on the use of Medicaid to pay for long-term care is almost inevitable.
For those who don't know, a reverse mortgage is a loan against the equity in your home or condo (no co-ops) for persons 62 and older. The proceeds, which are tax-free, may be taken as a lump-sum, a line of credit or in periodic payments, and may be used for any purpose. The home remains in your name, and the unused portion of the loan will continue to grow with interest.
One type of reverse mortgage, called the "Cash Account," is sold by Financial Freedom, the nation's largest lender of reverse mortgages. The "Homekeeper," is sold by Fannie Mae. But the best and the most popular is the Home Equity Conversion Mortgage, or HECM, sold and guaranteed by the Federal Housing Administration and the Department of Housing and Urban Development.
How much you'll get depends on where you live and your age. To find out what your home or condo would bring from the various lenders, use the calculator at www.reversemortgage. org, the Web site of the National Reverse Mortgage Lenders Association, or www.financialfreedom.com. Or go HUD's site:
http://www.hud.gov/groups/seniors.cfm and click on reverse mortgages.
Despite the increase in reverse mortgages (500 percent since 2001), there were only about 43,000 HECM loans throughout the country this fiscal year, including 4,000 in Los Angeles but only 1,400 in New York. Last year, the loan limit for a HECM was raised to $312,896 in metropolitan areas, and $172,632 in rural areas. The loan limit for a Homekeeper is $359,650.
The typical borrower no longer is a 76-year-old widow in need of help with her daily living expenses. While the average borrower is in his/her 70s, increasingly, couples and younger homeowners are making their equity work for them to enhance their retirement years.
The proceeds of a reverse mortgage can be used for a dream trip, or it may be invested or help eliminate payments on existing debts.
While reverse mortgages can be a great help, they have their downside, as NCOA the council points out. Closing costs could amount to more than 5 percent of the value of your home. Although the costs can be financed as part of the loan, you'll lose money unless you remain in the home for at least five years.
Also, even if the interest rates are favorable, interest will add up over the life of the loan.
Although the closing costs and the interest are paid at the end of the loan, the accrued interest plus what equity is used by the borrower means the value of the home to be left to heirs will be sharply reduced. Indeed, the heirs will be left with a heavy debt, should they wish to keep or sell the home.
But, as HUD says on its Web site, the government guarantee of a HECM means "you do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value." And the government guarantee protects the lender if the home's value declines below the value of the loan.
A reverse mortgage is a big, complicated step. But as reverse mortgage expert Dennis Haber of Hicksville, N.Y. points out, the HECM requires you to have counseling from a HUD-approved agency, so you know what you're getting into. Also, it's free.
To find the nearest counselor, call 1-800-569-4287."
©2006-Newsday,Inc.- Saul Friedman - Melville, N.Y.
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