Can A Reverse Mortgage Satisfy The LTCI Need Of Boomers?
When there is a growing need for long term care insurance and a growing pot of funds to draw from, does it make sense for boomers to tap into the equity in their homes?
That depends on whom you talk to and how it is done, according to interviews.
Tapping growing home equity values by using reverse mortgages is one way to foot the bill for long term care, said David Blaszczak, a representative with the Centers for Medicare & Medicaid Services, a division of the Department of Health and Human Services in Washington. Blaszczak made his remarks at the winter meeting of the National Association of Insurance Commissioners, earlier this month.
The Department of Housing and Urban Development will offer a 2% discount on reverse mortgages as part of closing costs to help pay for LTC insurance, Blaszczak said. A homeowner applying for the discount would have to use all of the money taken out from the loan to buy LTCI, he said.
The authority to do it exists and implementation can begin once a regulation is finalized, Blaszczak added.
Making LTCI available to Americans is important, he said, because “the issue of how Americans will pay for LTC becomes increasingly pressing as the baby boom generation ages.
“Continued reliance on public funding is problematic and the need for expanded LTC financing options must be addressed. This is an issue of significant concern for beneficiaries, their caretakers, providers and for stewards of the public programs that today bear the brunt of the cost,” he said.
CMS maintains the issue is significant enough to award a $295,000 grant to the National Council on the Aging, Washington, through May 30, 2004, to study the use of reverse mortgages for long term care expenses.
The American Council of Life Insurers, Washington, is monitoring the idea, says Lynn Boyd, ACLI senior counsel, long term care issues. Using reverse mortgages could be a positive way to fund LTC if appropriate safeguards are put in place, she adds.
Not everyone agrees, however. “It is unusual that it would be a sound economic decision,” says Bonnie Burns, director of consumer education with California Health Advocates, Scotts Valley, Calif.
The concern, she explains, is that a consumer may take a reverse mortgage, strip out the equity in their home over time and then not be able to afford to continue coverage if costs increase. If that happens, Burns adds, then the consumer is left without a means to continue coverage and without equity in a home.
Another concern, Burns says, is that those selling LTCI will say the government supports the use of reverse mortgages as a funding vehicle without explaining the possible downsides for consumers.
Using a reverse mortgage could be a good way to pay for LTC insurance but not necessarily a good way to pay for long term care, says Arthur Stein, a certified financial planner and a vice president with Cassaday & Co., McLean, Va.
LTC premiums and reverse mortgage payments to a homeowner should be relatively fixed, but if insurance is not used, the cost for LTC may increase substantially, he explains.
Before using a reverse mortgage, a homeowner needs to assess his financial situation, Stein says. If the equity in a home is the only asset a homeowner can use to fund LTC, that individual needs to ask himself why he is taking out a reverse mortgage.
There would be more money available for LTCI if a homeowner sells a home, moves into smaller quarters and uses the proceeds of the sale to pay for LTCI, he says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 19, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.