Reverse-Mortgage-Truth.com

A recent news story found here states that reverse mortgages should be a last resort, not a “ticket to the resort”. This attitude toward this relatively new mortgage loan is not uncommon. But this is an opinion, not a fact, and everyone is entitled to their own opinion. Here is mine.

By saying that a reverse mortgage is a loan of last resort, it implies that it is a poor choice and you should do anything to avoid it. I say that depends on your goals. Since the reverse mortgage allows you to use a portion of your home equity, the question to ask yourself is whether or not that tradeoff is worth it to you.

Using your home equity means you will have less of it in the future. If you plan to sell your home, take the money and move, then you must decide if there will be enough left over for your purposes. Or it may be more important to you that your heirs get the maximum amount of money possible. In these cases, the reverse mortgage may not be the best choice for you.

For others who want to stay in their homes for the rest of their lives, using some of the equity with a reverse mortgage may be a good choice. Their heirs may get along just fine with whatever home equity is left over, since the reverse mortgage rarely allows you to use all of it. Ask your reverse mortgage lender for an Amortization Table to project how much equity will remain in your case.

Knowing these tradeoffs may help you evaluate the relative benefit of a reverse mortgage. The question to ask yourself, is whether having extra cash for any purpose and the guarantee of no payments is worth the tradeoffs to you.

If you need funds for medical expenses, then you will probably consider Medicare as a financial resource in lieu of a reverse mortgage.

If you are 65 years or older your probably already have Medicare. Medicare is a god-send for many people! There are however, some significant holes, especially with the recent reforms that affect people who spend a lot of money on medications. These and other gaps in Medicare coverage can sometimes be covered by Medicare Supplemental plans or with a reverse mortgage.

If nursing home care is needed, Medicare will cover the cost only if the senior went to a skilled-nursing home (not assisted living) directly from the hospital, will be staying longer than three days, and requires ongoing skilled-care that was prescribed by her doctor. Even then, Medicare covers all nursing home care costs for only 20 days, and supplements them for no more than 100 days. It does not cover non-medical care such as assisted living and in-home care. If you need those services, they will cost tens of thousands each year, so you should seriously consider a reverse mortgage. For more information see http://www.medicare.gov/Nursing/Payment.asp

This is the second post in a series.

If you need additional monthly cash flow, and there is any possibility that your funds will last less than a year, then it is time to assess all your options and obtain the money that you will need over the next several years. Which may mean that it is time to obtain a reverse mortgage. You do not want to get caught in a stressful last minute scramble for money and risk not having enough.

If you are going to use the funds that you have, make sure that you first consider the cost as compared to a reverse mortgage. If those funds have been in invested in stocks or a similar investment vehicle, you will probably owe capital gains taxes when you cash them out. The tax laws have become so complicated that you should talk to your tax expert to determine how much in taxes you will owe. Another cost of cashing in your investments is the loss of the future returns on those investments. Remember, the long-term return on stocks is about 11% per year – which, when compounded over time, can add up to a lot of lost money – far more than a reverse mortgage would cost you.

What if you are an heir and those investments belong to a senior parent? Then you need to consider the consequences of using those funds now versus avoiding capital gains taxes by waiting to inherit the funds. How does that work? Generally, when you inherit an asset that has increased in value, you enjoy the benefit of a stepped-up basis in that asset and thus no capital gain. Here’s an example:

Mom bought stock 20 years ago for $1000. $1000 is her basis in that stock. Today, that is worth $10,000. If she were to sell it, she would have a capital gain of $9000. That means she must pay capital gains taxes on $9000. But, when the heir inherits the $10,000 in stock, his basis is $10,000. So assuming he sells it before it appreciates more, he will have $0 in capital gains taxes! You should consult a tax expert to confirm all tax-related issues for your specific circumstances.

Check here to find out what reverse mortgages California cost.

If you have done any research or read any news articles, you've read that reverse mortgages aren't for everyone. And I agree with that. But for many, they are the best thing since sliced bread. What makes the difference?

Let's start with talking about for whom reverse mortgage may not be the best choice. The most obvious group is those who do not qualify for any of the programs. The basic requirements, such as both spouses being too young or non-home ownership, can be evaluated quickly. But the existence of a current mortgage, unknown home value, and even ownership in a stock co-operative can go either way.

There are several scenarios where a reverse mortgage might not be the best choice. A single homeowner who is very sick, plans to move into a nursing home soon, and can easily qualify for a large home equity line of credit. He may be better off with that mortgage if it will give him more than enough money to cover expenses for the remainder of his time at home.

A couple who has conservative investments that are securely providing them MORE than enough money to support their desired lifestyle for the rest of their lives may not need a reverse mortgage. It's probably unnecessary for a single person with a good pension, excellent health, a long term care insurance policy and who has no desire or need for additional funds.

Everyone's situation is unique. If you think that you or someone you know may qualify for a reverse mortgage and are curious about its potential benefits, I encourage you to investigate it. It may or may not be for you or the person you know. But get your questions answered and find the information that you need in order to make the best decision for your situation. As there is unfortunately a lot of misinformation out there, whatever decision you make, be sure that it is well informed and based on the facts. Much of that information can be found in this blog. A helpful reverse mortgage FAQ may also help you make the right decision.