Use Your Home to Stay at Home

1
Sponsored by The National Council on the Aging
and CareSource
Healthy Aging Briefing Series
Use Your Home to Stay at Home-- Reverse
Mortgages
WELCOME
This session will begin promptly at 130pm
ESTPlease mute your phonePersonal
introductions are not necessaryThe moderator
will be on the line shortly
2
USE YOUR HOME TO STAY AT HOME THE HOME EQUITY
SOLUTION

• Barbara R. Stucki, Ph.D.
• NCOA/Caresource Healthy Aging Briefing Series
• February 23, 2006

3
Home equity - A timely issue

• About 82 percent of seniors are homeowners. Among
  older homeowners, 74 percent have no mortgage.
• Over half the net worth of seniors is tied up in
  their homes and other real estate.
• Seniors are being encouraged to tap home equity.
  They need help to make sure they use this asset
  wisely.
• Funds from reverse mortgages can help seniors to
  age in place and avoid costly institutional
  care.

4
Ways to tap home equity

• Sell the house and move.
• Conventional home equity loan or line of credit.
• Lower closing costs.
• May not qualify - Banks look at income and debt.
• Risky May lose house if cannot make monthly
  payments.
• Single purpose loan State or local program to
  help with repairs or property tax deferral.
• Reverse mortgage.
• Best for those who can stay at home several
  years.
• No income requirement. No monthly payments.
• Can stay in home for as long as you want.

5
Reverse MortgagesThe Basics
6
How does a reverse mortgage work?

• A loan that allows homeowners age 62 to convert
  home equity into cash while living at home for as
  long as they want.
• Can receive payments as a lump sum, line of
  credit, monthly payments (for up to life in the
  home).
• Funds can be used for any purpose. Tax free. Will
  not affect Medicaid eligibility if used in month
  received.
• Loan comes due when the (last) borrower moves
  out, dies, or sells the home.
• Borrowers (or heirs) can either repay the loan
  and keep the house, or sell it and keep the
  amount left over after repayment.

7
Types of reverse mortgages

• HECM Home Equity Conversion Mortgage
• HUD program, insured by FHA
• Most popular reverse mortgage 90 of market.
• Fannie Mae Home Keeper loan
• Borrowers receive more cash than a HECM because
  loan limits are higher.
• Financial Freedom Cash Account loans
• Available to seniors with homes worth 600,000.
• Almost no maximum loan limit.

8
Factors affecting the size of the loan

• Value of the home.
• Age of youngest borrower (must be at least 62).
• Current interest rate.
• HUD 203-b lending limits, for HECM loans. In
  2006
• 362,790 in metro counties with high home values.
• 200,160 in rural counties.
• Home repairs. House must meet FHA standards.
• Fees rolled into the loan.
• Origination fee.
• Upfront mortgage insurance premium.
• Other closing costs (title search, appraisal,
  etc).

9
Consumer protections

• Never owe more than the value of the house at the
  time of sale or repayment of the loan.
• Must receive counseling from a HUD-approved
  agency before they can take out a loan.
• Borrowers can cancel the loan for any reason
  within three business days after closing.
• Unused amounts in the creditline grows over time.
• Example 80 yr old with a 125K house can get a
  loan of 83,088 that would grow to 112,856 in 5
  years if left untouched (HECM creditline interest
  rate6.32)

10
Using Reverse Mortgages to Pay for Help at
Home
11
Reverse Mortgage Fills a gap
Aging in Place
Plan Ahead
Crisis
Reverse mortgage
LTC Insurance
Medicaid
50
60
70
80
90
Age
12
New strategy to build resilience

• Proactive - allows for earlier intervention to
  avoid problems.
• Pays for everyday expenses associated with aging
  in place. Loan can be used for any purpose.
• Enables borrowers to fill unmet needs and
  critical gaps in services.
• Just in time strategy to help seniors manage
  the monthly budget and reduce the impact of
  financial shocks.

13
Reverse mortgages can help seniors to age in
place

• Reverse mortgages can increase the resilience of
  older homeowners
• Support family caregiving.
• Extra help to reduce the burden of care.
• Provide income to unpaid caregivers.
• Pay for preventive measures.
• Keep the home livable.
• Home repairs and maintenance.
• Adaptive devices, home modifications.
• Support communities.
• Strengthen ties of reciprocity that build social
  capital.
• Reduce isolation.

14
Reverse mortgage funds could pay for home care
for many years
Likely duration of funds based on monthly
withdrawals from a HECM creditline (years)
Years
500/month
1,120/month
Age of borrower
2,160/month
Estimates based on HECM amount for a 122,790
home and an annual creditline growth of 5.36.
Source NCOA analysis using the AARP reverse
mortgage calculator
15
Barriers and Options for Action
16
Key barriers limiting the use of reverse mortgages

• Myths and misperceptions about reverse mortgages.
• Closing costs for these loans.
• Worries about using money wisely, fraud and
  scams.
• Impaired elders may not be able to continue to
  live at home very long due to their chronic
  condition.
• Fear of impoverishment.

17
Options for Action

• Educate older homeowners and their families about
  using reverse mortgages for aging in place.
• State websites can include information on reverse
  mortgages.
• Become an approved HUD HECM counselor.
• New NCOA and Lewin Group research project
• Funded by grants from the Assistant Secretary for
  Planning and Evaluation (ASPE) and AoA.
• Goal to find appropriate ways to encourage
  seniors to use a reverse mortgage for aging in
  place.
• Reduce upfront loan costs for borrowers who face
  financial challenges due to long-term care.
• Provide additional assistance and advice to help
  borrowers to stay at home as long as possible.

18

• Barbara R. Stucki, Ph.D.
• Project Manager, National Council on the Aging
• Use Your Home to Stay at Home Initiative
• Barb.stucki_at_ncoa.org
• 541-322-5610