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 Money from a reverse mortgage can be withdrawn tax-free in three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
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.