Owning your own home can be a wonderful thing, and it’s certainly an accomplishment, but it also has a lot more perks than you might initially think. For example, owning your own home provides you with an asset that you can borrow against when you need help paying for long-term care. Elderly adults are able to use their home’s equity to pay for any necessary long-term care. This can work to get rid of a lot of pressure on other family members and help provide adequate care to older adults as they continue to age.
Most conventional home equity loans are used to pay off things like any existing debts, mortgages, or make any home repairs. Although, the home equity isn’t completely free, since you have to pay the loan back with interest on top of that.
Conversion Mortgage Loans
The HECM (Home Equity Conversion Mortgage) reverse mortgage program, put in to place by the Federal Housing Administration, is a government program designed to help elderly homeowners get to and use the equity in their homes. While the program operates in much the same way as a conventional home equity loan, there are a number of options for payment available to you, and each one is in place to meet a specific need:
- Tenure—This offers equal monthly payments for as long as the person borrowing remains alive and keeps the property as principal residence.
- Term—It requires equal monthly payments, like a tenure plan, but these are made for a fixed period of time, specified by the borrower.
- Line of Credit—Different from tenure and term plans, these plans allow for unscheduled payments at a specific time stated by the borrower, as well as in the amount the borrower requests until the line of credit is no more.
- Modified Tenure—This combines both scheduled monthly payments and unscheduled payments on demand, but only so long as the borrower keeps their home as the primary residence.
- Modified Term—This option combines scheduled monthly payments and unscheduled payments on demand for a fixed period, as determined by the borrower.
Requirements and Costs for HECM
- Must be over 62 years of age.
- Must have current mortgage either paid off or paid down by a good amount.
- Must keep home as the primary residence to qualify for the program.
- Must not be delinquent on any federal debt(s).
- Mandatory counseling is required in a consumer education session
In these counseling sessions, you won’t just go over eligibility requirements and provisions to repay the loan, but also the financial effects of an HECM loan, as well as alternatives available for those who might be better off with other means of funding. These types of loans often come with a variety of fees and service charges too, though a majority of the costs of an HECM loan can be dealt with through any proceeds from the loan itself. This is good for older adults since they don’t have to pay any out-of-pocket expenses. These fees and charges include things like any initial and annual mortgage insurance premiums, an origination fee, various services fees, third-party charges, and interest on the loan in particular.
The origination fee is normally the most expensive of those. This fee is charged by lenders as compensation for processing the loan and can range from up to $2,500 for those homes valued at less than $125,000 to two percent of the first $200,000 of a homes’ value plus one percent of any amount over that number. It is important to note that these fees are capped at $6,000.
Important Questions to Ask
Making use of your home’s equity to cover any long-term care costs you have is not something you should rush into doing. Before making the final decision to use a HECM loan (or any other type of home equity loan, for that matter), potential borrowers should ask themselves the following questions:
- Do I want to make use of the equity in my home to pay for long-term care costs?
- Will the approximate value of my home help to cover any care costs well enough when I take on a reverse mortgage?
- What are any potential drawbacks or consequences of a reverse mortgage?
- What is the first thing that should be done to take care of long-term care costs after unlocking home equity?
If you or someone you love needs assistance with Elder Care law issues, call 856-281-3131. Let us help ease your stress and give you a plan.