senior citizens

Home Reverse Mortgaged? Here's How to Sell It

Anum Yoon — Fri, 23 Dec 2016 11:00:08 +0000

Reverse mortgages are becoming more and more popular as the U.S. population ages. In a reverse mortgage, instead of having to make a monthly payment on a mortgage until it is paid off, a homeowner receives an amount from the equity in their house every month.

Reverse mortgages are often a boon to senior citizens living on a fixed income. It essentially removes the need to pay a mortgage every month by converting existing equity in a home into income that covers the mortgage. Reverse mortgages are available only to people 62 years of age or older.

The downside, of course, is that reverse mortgages have the opposite effect on equity in the house that conventional mortgages do: They draw from it rather than adding to it. At the end of a reverse mortgage, there may be little or no equity left in the home.

Steps to Sell the Home

Given that, how do you sell a house with a reverse mortgage? After all, at some point the senior citizen may want to move into an assisted living facility or in with children. They may also pass away, and their heir is left with the task of selling the property.

It's actually easier than you might think to sell a house with a reverse mortgage. Here are 10 steps you'll need to consider.

1. Know How Much Is Owed

The most important first step is to find out how much is owed in the reverse mortgage. The amount will include moneys paid out by the bank, plus fees and other charges.

2. Check the Paperwork

Read over the paperwork from the bank that made the reverse mortgage. You need to know the interest rate, any fees if the loan is paid off in full, and any other charges.

3. Look for Liens

Double check to ensure there are no other liens on the house. This is important because it can make a huge difference in any equity remaining in the house.

4. Ask for a Payoff Quote From the Lender

A payoff is the amount required to, as the term implies, pay off the reverse mortgage in full. It differs from how much is owed because of fees and other charges. You need to ask for this figure in writing.

5. Estimate What the Home Is Currently Worth

There are two possible scenarios here. One is if the house is worth more than you owe. It may have appreciated in value, or the reverse mortgage was not in effect for a long period of time — or both. In that case, you can sell the home just as you would sell any other home and realize the net appreciation between what is owed and what it sells for.

The other scenario? The house may not be worth what is owed on it, or the market value may be so close to what is owed that you will lose money on any sale. You are underwater on the loan.

In the latter case, you have two options. One is to try to rent the house to receive income from it. The other is to see if the reverse mortgage can be converted into a regular mortgage. If it can, you begin making mortgage payments on it and build up equity in the house, just as you would with any house purchased.

6. Make the Sale

If a sale does make financial sense, you proceed just as you would with any home sale. You can arrange for a private sale, or work with an agent. Most agents will charge approximately 6% of the sale price to list and show your home. Remember that what is owed to the bank for the reverse mortgage has to be paid when the house is sold.

7. Make Repairs

Take care of any needed repairs or maintenance on the house to get it ready to show. If you are selling it privately, make a plan for where you will advertise and show it.

8. Hire a Lawyer

Because of the complexity of reverse mortgage sales, hiring a lawyer is likely a prudent move. A lawyer can ensure the terms of the sale are the most advantageous they can be for you. In some locations, a lawyer is required in a real estate transaction that involves any type of loan. Be sure to check any requirements in your area. Finally, the payoff of a reverse mortgage must be handled by an experienced person, and many lawyers are experienced in this area.

9. You — or the Buyer — Pay Off the Reverse Mortgage

Be aware that any buyer will need to have either cash to make the purchase or have financing in place if you do not have the money to pay off the reverse mortgage. They will essentially be providing you with the money to execute the payoff.

10. Close the Sale of the House

Issue the bank the payoff amount. You are finished selling the home with the reverse mortgage.

As reverse mortgage become used more frequently by senior citizens, the need to sell homes with a reverse mortgage will become more common. These 10 steps will ensure you sell the house in the correct way.

This article is from Anum Yoon of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Is Long Term Care Insurance Worth It?

Dan Rafter — Tue, 26 Jul 2016 10:30:09 +0000

Worried about how you'd pay for a long stay in a nursing home? These concerns aren't rare. The 2016 Insurance Barometer Study found that 58% of respondents worried they wouldn't have enough money to afford the costs of long-term care.

Fortunately, there is an insurance product that can help ease these concerns: long-term care insurance. It pays for services to help people who need assistance with daily activities, or who require supervision because of a disease such as Alzheimer's. People often use this insurance to cover stays in nursing homes.

The U.S. population is aging. The U.S. Census Bureau said that there were 46.2 million people 65 and older in 2014, or 14.5% of the country's population. These people are the prime target for long-term care insurance. But you may need it sooner if you have reason to believe you'll need such assistance earlier in life.

Is It Worth It?

Should you invest in long-term care insurance? That depends on a host of factors. Do diseases such as Alzheimer's run in your family? Did your parents and their parents die young, or did they live to an old age? Did they require long stays in nursing homes?

Unfortunately, there's no way to predict whether you will need long-term care in your life. You might be healthy today. You might eat well and exercise regularly. This doesn't mean that your health can't suddenly change.

Then there are other financial alternatives to consider. By the time you need long-term care, you might be eligible for the government's Medicaid program, which will pay most of the cost of any stays in critical-care facilities or nursing homes. This program is only open to consumers with few assets. Many senior citizens on fixed-incomes, though, will qualify.

Also, Medicare will often pay for the first 20 days that you spend in a nursing home. From the 21st to the 100th day, Medicare requires that you make a co-payment of $161 a day.

If you do want to invest in long-term care, know that the insurance can be costly. The American Association for Long-Term Care Insurance says that an insurance policy providing $164,000 in immediate coverage will cost a male age 55 in good health an average of $1,060 a year. A single female in good health would pay an average of $1,390 a year for the same coverage, according to the association.

A couple, both age 60 with standard health for that age, would pay an average of $2,710 a year — the combined cost for both members of the couple — for a long-term care insurance policy with $164,000 in immediate coverage.

Better policies will cost significantly more. The association says that a policy providing $164,000 in immediate coverage at age 60 and $365,000 at age 85 would cost a 55-year-old man in good health an average of $2,075 a year. It would cost a 55-year-old female also in good health an average of $2,411 a year.

Long-Term Care Costs Continue to Rise

According to the 2016 Genworth Cost of Care Survey, the cost of long-term care is only getting more expensive. According to the survey, the national median cost of a month's stay in a semiprivate room in a nursing home is $6,844. That figure rises to $7,698 for a month's stay in a private room. The median cost for a stay in an assisted-living facility was $3,628 a month.

Other costs associated with long-term care are staggering, too. The Genworth survey found that the median cost for a month's worth of homemaker services was $3,813 and the median cost of a home health aide was $3,861 a month. The median cost of adult day health care services was $1,473 a month.

The odds are high that you, too, will need to some form of long-term care as you age. According to a 2013 study by the Centers for Disease Control, more than 8.35 million people receive support from the five main types of long-term care services: home health agencies, nursing homes, hospices, residential care communities, and adult day service providers.

You can't predict today whether you will need such care or whether you'll ever need to use a long-term care insurance policy. But for some, the annual investment does provide peace of mind that if you are hit with a huge bill for a long stay in a nursing home, you won't have to bankrupt yourself to pay for it.

Have you considered long-term care insurance?

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Do You Need Medigap Insurance?

Kentin Waits — Fri, 15 Jul 2011 10:24:29 +0000

There are few experiences in life more daunting than navigating our health-insurance system — especially when multiple policies are involved in a complex mix of public and private coverage. Such is the challenge for Medicare recipients who find themselves in need of supplemental insurance. Medicare is government-administered health insurance for people 65 and over, or who are under age 65 and permanently physically disabled (or those who meet other special criteria). But Medicare doesn’t cover everything. For those holes in Medicare coverage, a Medigap policy is needed. (See also: How to Examine Your Healthcare Plan and Save)

As the name suggests, Medigap policies are designed to fill the "gaps" in health care expenses that Medicare doesn’t cover or doesn’t cover completely. Medigap plans are private, not public, and they're offered by most major insurers. Policies typically pay for the little things that can add up quickly (think co-payments, hospital stays, and deductibles). If you’re a Medicare beneficiary and have opted for a supplemental Medigap policy, Medicare will pay its share of approved expenses, and then your Medigap policy will kick in to (hopefully) cover all or most of the remaining expenses.

Medigap polices are strictly regulated by state and federal laws designed to clearly reflect the policy’s purpose and to protect Medicare consumers. There are twelve different types of Medigap policies to choose from, and each is designated by a letter A through N. For a comprehensive list of the different types of polices and a description of each, check out this Medigap policy overview.

Generally speaking, less-expensive plans have fewer benefits and higher out-of-pocket costs. More expensive plans include some extra benefits, like coverage for routine checkups, some Medicare deductibles, at-home care services, and more. For example, Medigap Plan A is the most basic policy; it covers co-payments (but not deductibles), skilled nursing care, or hospice care. Plan L, a more comprehensive policy, covers co-payments plus 75% of hospital deductibles, 75% of skilled nursing care expenses, and 75% of hospice care. Exercise caution if you decide to cancel or change your Medigap plan — if you bought the policy before 1992, changes to coverage standardization rules will make it impossible for you to get the same policy back once it has been canceled.

Regardless of what company sells it, each standardized Medigap policy is required to provide a basic level of benefits for consumers. However, insurance companies may vary in eligibility requirements, responsiveness, and customer service, so keep these things in mind when shopping for a Medigap provider.

As Congress debates entitlement cuts to lower-income individuals and retirees and as the health care debate rages on, Medigap insurance warrants a second (or third) look. Though everyone's financial picture is unique, Medigap policies are gaining in popularity as healthcare costs continue to rise and as life expectancy increases.The reality is, we don’t know what healthcare will look like in this country in five or ten years, and we don’t know what form health insurance and government-sponsored coverage will ultimately take. In the meantime, the smart money is on research, preparation, and staying healthy.

This article is from Kentin Waits of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Reverse Mortgages: The Best Way to "Eat Your Home"?

Nora Dunn — Wed, 03 Oct 2007 00:16:37 +0000

Who says you can't eat your home?

A senior citizen who owns a house outright but doesn't otherwise have two pennies to rub together (or who faces a financial crisis they can't afford) does have an option for accessing the equity in their home without having to sell their house or otherwise uproot themselves unwillingly. The tool in such a scenario is called a Reverse Mortgage.

First, the nuts and bolts of reverse mortgages:

Who says you can't eat your home?

First, the nuts and bolts of reverse mortgages:

The candidate for reverse mortgages must be at least 62 years old, and must have no other mortgages outstanding on the property. Not all homes qualify either (for example many mobile homes are ineligible). There are many hoops to jump through too; The applicant must go through a Department of Housing and Urban Development (HUD) approved financial counsellor.

Once approved, the amount of the reverse mortgage depends on three factors: prevailing interest rates, the appraised value of the home, and the borrower's age (and sometimes health). The lender needs to ensure that the loan amount won't reasonably exceed the value of the home once interest and other charges are levied.

The money is then granted to the borrower either in a lump sum or monthly payments, or a combination of both. The borrower doesn't have to make any repayments, since the lender will recoup their costs (plus interest of course) when the house is sold or when the owner dies. The remainder of sale proceeds over and above the mortgage amount goes to the owner's beneficiaries, and the program is (ideally) structured such that they never end up owing more than what the house is worth.

In order to continue to qualify for the program even after the money is lent, the home must remain the principal residence of the owner.

The initial cost of a reverse mortgage can be quite high, but is usually rolled into the mortgage amount to prevent the cash outlay (which for somebody applying for a reverse mortgage is usually non-existent). Some lenders charge an insurance premium in the amount of 2% of the loan, another 2% for the origination fee, in addition to the closing costs (which include services such as legal, title searches, and appraisal fees). A $200,000 loan, for example, can cost $8,000 plus closing costs which amount to at least another few thousand. And then interest is charged for the duration of the loan on the full amount.

Interest rates are similar to those for Adjusted Rate Mortgages, and they usually change (for example semi-annually or annually) according to the current rates. Since the term of the mortgage is unknown at the outset, fixed interest rates are not often available.

The money is most often not taxable, and although the interest can be deductible, it is not so until the interest is actually paid (at the end of the term).

Pros:

Many seniors when faced with financial trouble don't want to consider the thought of moving from the home they've likely lived in for decades. It is a change often beyond their comprehension, and a sacrifice in their perceived quality of life. A reverse mortgage could allow them to stay in their home.

Cons:

If you receive certain social benefits programs (eg: Medicaid), and you opted for a lump sum reverse mortgage amount that then sits in your bank account (or other near-cash investment), then you are all of a sudden considered to have liquid assets and your ability to qualify for the benefits is jeopardized.
It ain't cheap, when you calculate the fees, closing costs, insurance, and interest.
Although the program is structured so that the amount borrowed including interest and other costs never exceeds the value of the house, I'm not so sure. If the borrower was initially fairly young (early-mid 60's for example), and the maximum amount was borrowed as a lump sum, I see an opportunity for the perfect storm. All the borrower has to do is live longer than anybody had suspected (each year increasing the interest dollars owed), the interest rates increase dramatically, and the house values in the area drop. However the good news is that the lender (or the insurance the lender purchased) covers any additional costs. It just remains that no additional funds would be available to beneficiaries.

Conclusion:
To anybody in a situation where you (or family members) are considering a reverse mortgage, I can only offer this advice: Thoroughly do your research and examine all your options.

Some alternatives to reverse mortgages are:

Selling the home. You may discover that buying or renting another place and pocketing the extra cash isn't as traumatic as predicted, and in fact could give you a new lease on life! However it may also entail too much outlay of expenses in moving, closing costs, and sales commission.
Many states offer "no-cost" or "low-cost" reverse mortgages. These often don't carry the same prohibitive fees as the more conventional reverse mortgages, but the interest rates are higher.
Home Equity Line of Credit (HELOC). There are very few upfront costs, but interest-only payments are required and the rate of interest is a touch higher.
Get a loan from a family member.
Consider a sale-leaseback situation, where somebody buys the house, but then allows you to lease it from them. This gives you the cash needed from the sale, and the ability to remain in your home by paying rent.

For those considering moving or relocating to assisted housing, here is a link to help you determine what housing choices are available out there.

Be realistic about what your situation is, and make sure all your ducks are in a row. The reverse mortgage may be just what the doctor ordered. But don't jump to this option before exhausting all other options, as the costs can be high.

This article is from Nora Dunn of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: