According to AARP, more than 78,000 reverse home mortgages (also called Home Equity Conversion Mortgages or HECMs) were insured by the Department of Housing and Urban Development last year. 

There are even men and women who specialize in obtaining reverse mortgages for clients who are calling themselves Geriatric Care Managers.

First, let me tell you that in order to be a geriatric care manager, a person needs to have been educated in nursing, gerontology, certain areas of psychology or clinical social work. So please beware of financial personnel who use that term to describe themselves.

Before rushing into a Reverse Home Mortgage, there are some things to be considered. 

!.  You can obtain a reverse home mortgage from a traditional lender but the borrower must be at least 62 and the home must be owned outright or the ability to pay it off with the reverse mortgage must exist. 

2.  You must live in your home and the home must meet certain Housing and Urban Development (HUD) department standards such as  having the necessary fixtures that make it habitable.  Single family homes qualify and some condominiums, modular homes and duplexes may also qualify.

3.  You must see a reverse mortgage counselor before you apply for the mortgage and there will be a fee for this  session.  It will be about $125.00 and it can be rolled into the loan.  But unlike regular home loans, you must be able to pay your property taxes, home owners’ insurance and home owners’ association fees separately.  (This is because you do not need to make monthly mortgage payments immediately upon obtaining your reverse home mortgage.)

4.  In fact, you (or your estate) do not make payments on this type of a loan until you die, move or sell your home, and at that time, the estate pays off the reverse mortgage plus interest and any loan fees. 

But what if one spouse dies?  Must the other spouse immediately pay off the reverse mortgage?  Well, that was the case until recently.  In a situation where one spouse died and the remaining spouse  (who was not listed on the reverse mortgage documents) was in danger of having his home foreclosed, a lawsuit was filed and changes have been made.  Read more about that HERE in an article written by Carole Fleck of AARP.

5.  When you are approved for a reverse home mortgage, you may receive the money in a lump sum, as a line of credit or in monthly payments TO you.   These mortgages are available with both fixed and variable interest rates.   

6.  As with other home loans, there are substantial fees.  Loan origination fees, closing costs, interest, mortgage premiums and service fees, so you must be very careful that there will be enough money to cover these additional costs as the loan is paid off.

According to an article by Tara Coates in AARP, an example would be:  the standard HECM loan (reverse mortgage) charges a 2 percent mortgage insurance premium up front on the home value – not the amount borrowed – as with regular forward mortgages. For example, if you own a $400,000 home, the upfront MIP would be $8,000 – whether you borrow $30,000 or $200,000.

These loans may serve a particular portion of the population but they are not for everyone.  There are other alternatives which should be explored such as selling the home and purchasing a smaller one, renting out a room to a family member or close friend, refinancing to a lower percentage of interest, or selling off an insurance policy by way of a “life settlement” (which requires a large life insurance policy).  Also remember that for medical expenses, Medicaid is a possibility and a person may still own their own home, a car and several thousand dollars and still be able to qualify.

There is one other thing to consider and I’ve left it until the end for a reason.  With a reverse home mortgage, there may not be an inheritance left for the children or other possible beneficiaries.   This may cause discord amongst family members but remember that the most important consideration is the well-being of the person who may wish to utilize the reverse home mortgage option. 

As an advisor to caregivers, I have encountered many caregivers whose parents or loved ones do not have sufficient funds for their long term care.  This can put not only the senior in danger, but the rest of the family as well. 

Two new(ish) ways to alleviate monetary insufficiencies are reverse home mortgages and life settlements.  While these are not the most preferable ways of funding what should be the “resting years” of our lives, they are an alternative that can work when there are no other options.

We are going to be discussing life settlements in this month’s coaching call so I asked Jerry Iwanski if he would write an article for our readers as he is an expert in the field of life settlements and can explain it better than I.

Life Settlements: An Introduction

By Jerry Iwanski – Alternative Senior Financing

As you may know, most seniors need more money to live comfortably through their golden years. This is especially true when faced with unforeseen expenses such as assisted living and long-term care. The urgency of finding a significant amount of money quickly exacerbates an already stressful, emotional situation. For these seniors, the options can be bleak. The answer, a Life Settlement.

A life settlement is a powerful financial tool that allows you to convert your life insurance policy into cash. In a typical scenario, a bank or financial institution will purchase the policy, become the owner and beneficiary, and take over the premium payments. You are released from any obligations and are free to use your settlement money for anything you like.

 Why has this become a popular solution?

People are living longer and want to do more during retirement. They have seen their net worth decrease in this current economic recession. A Life Settlement gives you the option to choose.  Choose to take that dream vacation, send your grand kids to school, pay for Long Term Care or Assisted Living.

Many people find that as they reach retirement age, pay off their mortgage or see their children through college, their life insurance has served its primary purpose - to protect loved ones and assets — and is no longer useful. It effectively becomes a “dormant asset.” At this point, the expensive premiums are being directed toward an investment that is under-performing. Freeing up the money and eliminating the premiums creates greater financial freedom and new options for you and your family.

A POWERFUL FUNDING OPTION FOR SENIOR LIVING AND HEALTHCARE

Life settlements provide an excellent opportunity to help you enjoy assisted living without financial pressures. With a life settlement, you can obtain the funds you need to finance your senior living and long-term care expenses.

TAP INTO THE FINANCIAL POWER OF AN “OVERLOOKED” ASSET

Many people don’t think of their life insurance as an asset. Once they secure coverage, they often pay the premiums and give little thought to the policy as an investment. It assumes an invisible role in their financial portfolio or is regarded as an expense that must be kept up. But by the time you near retirement, your policy has become a solid asset with years of equity. It’s money you can use today.

Who Qualifies for a Life Settlement?

The typical age to do a Life Settlement is 65 years and up. Depending on some circumstances the age can be lower. The types of life insurance policies that can be sold are term as long as they are renewable or  convertible, whole life, universal, joint survivorship. The policy must have been in place for at least two years. The typical minimum death benefit is $100,000 but again, depending on some circumstances it can be lower.

The Process

It typically takes about 4 to 6 weeks to complete the process.  Paperwork must be completed by the policy owner and the insurance company. While no medical exam is required a brief medical history is needed and sometimes medical records must be requested. The policy is “auctioned” to several investors and they make offers based on the information.  The offers are then presented to the policy owner, where they either agree or decline the offer. Once the policy owner agrees, money is deposited into an escrow account. When all paperwork is completed and signed, the money is transferred into your account.

What’s next?

Too few people know about the life settlement option. I hear from families every day who have let a policy lapse, or are about too, and they lose out on their opportunity to receive money that could help their loved ones during a time of crisis. Before you let your policy lapse or surrender it, check into a Life Settlement to see how much your policy is worth. There are no out of pocket fees to do a Life Settlement and there is no obligation to continue even after you find out what you can get for your policy. So you have nothing to lose.

If you would like to see if you qualify or get more information please contact Jerry Iwanski at                720-271-3729 or jerry@alternativeseniorfinancing.com. You can also visit www.alternativeseniorfinancing.com

About the Author

Jerry Iwanski has over 3 years of experience working with Seniors in the Insurance and Financial Services Industry. As a  Life Settlement Advisor he offers Seniors an alternate funding option for housing, health care, other investments, new life insurance policy and charitable giving. He is licensed in Life, Health, Property and Casualty and Annuities. He is also a Colorado Certified Long Term Care Advisor.