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House rich, but cash poor?
Protecting your home with a reverse mortgage
By Stephen Lamoreaux
For many senior homeowners, the prospect of living a longer life only gets better with each new advancement in medicine. But these medical "miracles" don't come cheap, and the rising costs of institutional health care exceed even the most aggressive inflation estimates. The average daily costs associated with a professional nursing-care facility exceed $200, and will quickly deplete the savings of even the most frugal. Long-term care insurance is one way an individual can provide varying levels of asset protection, but this scenario has two distinct problems - one must be healthy enough to qualify for the insurance and, if so, then be capable of paying for it.

Reverse mortgages are loan programs specifically designed for senior homeowners who are 62 years of age or older. Money from a reverse mortgage can be withdrawn tax-free in three ways: as a lump sum, as a line of credit or as a monthly distribution. While all three options will generate a mortgage lien equal to the total available funds, the latter two options provide the homeowner with the benefits of a monetary resource without the liabilities that can be associated with a liquid asset. These loan proceeds can be used to pay the premiums for long-term care insurance or life insurance policies or both, if the borrower qualifies for them. But for others, a reverse mortgage loan may be the only means by which a senior can help protect a significant portion of the equity in his or her home from creditors. The use of trusts, gifts and L.L.C.s (to name a few) are all worth their weight in gold if established timely, but the funding of these can be an issue.

Long-term care insurance is purchased on the basis of the value of total benefits to be provided. Unless an individual purchases a lifetime long-term care insurance policy, once the benefits are exhausted, health-care providers will look to other assets for their remuneration.

A reverse mortgage loan requires no monthly repayment of interest or principal, although there are no penalties for doing so. If senior homeowners choose to repay any portion of the interest accruing against their borrowed funds, the payment of this interest may be deductible just as any mortgage interest may be. In effect, a reverse mortgage can be considered an interest-only loan for its entire term, followed by mandatory amortization to maturity.

A reverse mortgage loan will be available to a senior homeowner to draw upon for as long as they live in their home. And, in most cases, the lender increases the total amount of the line of credit over time (unlike a traditional home-equity line whose credit limit is established at origination). If a senior homeowner stays in the property until death, his or her estate valuation will be reduced by the amount of the debt.

Stephen Lamoreaux, a Reverse Mortgage Specialist with Amston Mortgage Company, Inc., can be reached at (800) 625-8633x14 or steve@amston.net.
 
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