How do we help our seniors age gracefully? Most seniors would like to age in place. The place where they would like to age would, ideally, be their choice, and their first choice would be their current home. Finances and health play a big part in the decision process.

I would like to concentrate on how to best utilize the equity in one’s home as well as preserving the cash and savings that one has for as long as possible. The theme with the following suggestions will be aging in place comfortably. Number calculations are pretty much black and white, but it doesn’t mean that there isn’t creativity in terms of how those numbers are best allocated.

If a person owns a home and is at least 62,they can take a reverse mortgage on the property. There are some proprietary products that will allow younger ages, and second mortgage reverse products as well. There are positives and negatives to all mortgage products. The key is to make sure when you take any financing, that it aligns with what you are trying to accomplish.

Let’s talk about the advantages:

1. On home purchases, you preserve cash instead of paying all cash.
2. You eliminate a monthly mortgage payment on new loans as well as existing loans.
3. You can preserve your stock portfolio instead of selling investments to access cash, which drains your account and may cost you capital gains taxes.
4. You can structure the reverse mortgage so that you use a portion to close and leave an untapped credit line portion so that you take advantage of line growth. (There is a growth factor on a reverse mortgage: Any unused portion of the line grows and if you allow that, over the years you have more tax-free money available when needed.)
5. A reverse mortgage can be used for planning the following:
6. a) Provide funding for healthcare or medical treatment: Within one’s budget, there is a need for long-term care planning to both protect one’s assets and remove any potential burden on the family. Many seniors may be forced to use their savings and/or their monthly income for long- term care coverage. A reverse mortgage allows seniors to stay in their homes, be self-sufficient and not deplete all their savings.
7. b) Funding for estate taxes: If a reverse mortgage line is tapped to fund life insurance, the total estate value subject to taxes is lowered by providing life insurance proceeds for the homeowner’s heirs to pay estate taxes.

Generally, the full value of a home is subject to estate tax, but a reverse mortgage lien reduces its value, thereby lowering estate tax. (Consult your tax estate specialist.) At death, the full value of the property would not be included in estate valuation for tax purposes. The accumulated debt of the reverse mortgage would effectively reduce the property value and may lower any applicable estate taxation. In addition, accrued interest in the reverse mortgage may be available as a tax reduction upon repayment of the loan.

Don’t Let Misconceptions Become Missed Opportunities

Misconception: Reverse mortgages are a scam that sounds too good to be true.

Fact: Reverse mortgages are highly regulated products with strict government requirements that safeguard borrowers. This includes required counseling sessions that ensure the borrower understands the loan they are getting and their obligations. The most common reverse mortgage loan, the home equity conversion mortgage, is insured by the Federal Housing Administration (FHA), and all reverse mortgages, including proprietary products, are non-recourse. This ensures that a borrower and/or heirs will never have to pay back the lender more than the home’s value, even if the final debt is greater than what the home is worth.

Misconception: Reverse mortgages are only for desperate people and getting one is a bad thing.

Fact: A reverse mortgage can be an excellent financial tool for homeowners in or nearing retirement age. While it’s true that some use a reverse to save their homes and make ends meet, others use it strategically to diversify investments, buy a new property and fund their dreams. In fact, many financial planners advise clients to explore their home equity options when planning for retirement, including using a reverse mortgage to unlock cash while remaining in the home they love.

Misconception: The bank owns (or wants to own) the home.

Fact: Reverse mortgage borrowers continue to own their home and retain title throughout the life of the loan, so long as they adhere to the loan terms. After all borrowers pass away, heirs can repay the loan balance and keep the home. They can also sell the home and repay the full loan or, if the balance owed exceeds the home value in the case of a FHA insured loan, at least 95% of the appraised value. Lenders do not want to take possession of the home and only do so when the loan terms are broken and the balance due cannot otherwise be repaid.

Long-term care: According to Health and Human Services, 70% of seniors will need some form of home care in their lifetime. That equates to three out of four seniors. Long-term care policies can be very expensive. If someone has substantial savings or is lucky enough to have taken out the plans years ago, I will say, great. If that’s not the case, accessing cash from a reverse mortgage may be a great way to pay for premiums.

Medicare, Medigap and most Medicare Advantage plans are designed to cover hospital stays, doctor bills and some short-term skilled nursing. What they do not cover is the cost of everyday assistance in one’s home.

In-home non-medical home care plans in lieu of long-term care plans: Age is not an issue, but you must be able to perform activities of daily living when you sign the contract. These plans have no elimination periods (although there is an initial 90-day waiting period after enrollment). They are not insurance plans. These plans are subscription-based contracts. You can buy membership hours ranging from 1,500 to 10,000 home-care service hours.

Preservation of savings becomes key as we get older. Everybody has different needs and different risk reward thresholds. I’m not going to go into asset allocation, but I will suggest that if a person is in their 60s or older, and they want to eliminate some risk from their portfolio or roll over some monies from their qualified pension plans, annuities may be an alternative.

Annuities, when carefully structured, can provide upside (not guaranteed), while eliminating downside risk. Additional riders can be added, such as income riders and long-term care riders, which can be a great workaround from getting a standalone long-term care policy.

Another way to access capital is through sale leaseback companies. These companies allow owners to convert their home equity into cash, without having to deal with the strict qualification processes of banks or lenders. Their innovative sale-leaseback programs give you a flexible, quick solution for your financial needs while allowing you to stay as a renter in the home you love. There is also an option to buy your home back.

You can also get the equity benefits of a home sale and convert your existing home equity to cash, and use that cash to make a more competitive offer on your next home and save on short-term housing and storage costs.

Lease term: Twelve months, with the ability to exercise your option to list the home at any time within the first nine months and avoid unnecessary housing and moving expenses.

Practical solutions can ease the realities of the challenges that come with aging.

Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp. and www.Mortgagegenius.com. He is a real estate mortgage banker and business financing expert with over 35 years experience. He currently has 214 five-star reviews on Zillow. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! www.greenbackcapital.com [email protected]