Financing Options for Seniors
For most of us, our home is our greatest asset both emotionally and financially. For older people, most of their net worth is usually tied up in their home. The problem is they need to sell it to reap the financial gain of their diligent payments. And that's something many parents don't want to do even when they find themselves financially strapped keeping up with repairs on the house. There are some financing options you and your parents can consider. But watch out: There are a lot of scam artists out there! Be sure to work with a reputable lending institution and do your research.
You probably haven't thought of your monthly mortgage as a forward mortgage but if you think of it that way you'll get the reverse mortgage concept. In the forward mortgage you pay a lender a monthly payment in anticipation that you'll eventually own the home. With the reverse mortgage, you own your home and the lender pays you a monthly payment in anticipation of eventually owning it as an asset. The lender is betting that the property value will remain the same or appreciate and the lender will be paid from the sale of the house once your parents move or die. Meanwhile, your parents can live on this income, which can help with health care expenses and enhance the quality of their lives. Of course, this option works only if your parents have paid off their mortgage, or most of it.
Absolutely know what you're doing when it comes to home equity conversions. You've got to watch out for “equity sharing fees,” also known as cost bubbles, which is how companies can get around truth-in-lending disclosures and the wide variance in credit lines. The Web site www.reverse.org gives you very objective information on reverse mortgages. The Washington Post calls the site “scrupulously independent … the first step for smart consumers.” For more information, contact the National Center for Home Equity Conversion, 360 N. Robert Street, #403, St. Paul, MN 55101.
One of the more popular reverse mortgages, also known as home equity conversion loans, is the tenure loan. This allows homeowners to stay in their homes until they die or move. The payment is calculated based upon your parents' life expectancy, projections on the property's appreciation, interest rate, and property value among other things. Be aware that you must pay closing costs and insurance premiums which can reach up to $10,000. If you parents are on Medicaid or Supplemental Security Income (SSI), they can receive this income as long as they spend it within the month and are not piling it up as an asset. It must be used for living expenses.
Deciding on whether or not a reverse mortgage is the best option for your parents isn't one of those no-brainers. Your parents have to ask themselves: Do I want to spend my equity now? How long do I expect to live? What do I do, if I need nursing home care? Do I mind not leaving my house to my family as part of my estate? How will this improve the quality of my life? What will happen to the value of my house? Will this allow me to live independently? Does this financially yield the best results for me?
The Department of Housing and Urban Development (HUD) offers reverse mortgages. Call HUD at 1-888-466-3487 to see if your parents qualify. AARP offers a list of reverse mortgage counselors, a Home Made Money Guide, and a 30-minute video called Reverse Mortgage Choices. To order, call AARP at 202-434-6042, or visit AARP's Web site at www.aarp.org.
Property Tax Deferral Program
Property taxes for many older people who are living on a fixed income can become a major burden. Some states offer a program in which your parents can defer payments of their home property taxes until they sell their home or die. Usually, this type of deferment is based on income guidelines—it's not for the rich and famous. Call your local taxing body or the area agency on aging to see if this option is offered in your parents' area.
More on: Aging Parents
Excerpted from The Complete Idiot's Guide to Caring for Aging Parents © 2001 by Linda Colvin Rhodes, Ed.D. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.
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