Utilizing Home Equity. Reverse Mortgage? HELOC?

[mountainsoft]

Our home is fully paid for, and is currently worth a few hundred thousand more than we paid for it. I hope we never need it, but I'm curious what options are available to utilize the equity in our home to pay for things like long term care (in-home) or other large unexpected expenses should the need arise in the future.

I've heard of Home Equity Lines of Credit and Reverse Mortgages, but I know nothing about either of them to know if they're a smart or stupid move.

We would like to stay in our home as long as possible, but it would be nice to pass it down to our daughter once we are gone.

 

[aja8888]

HELOCs are loans that have to be paid back.

Reverse mortgages hawked by old movie stars and dumped politicians are not a great way to extract equity out of your house. Buyer beware!

Our plan, if either of us needs to go into assisted living or, God forbid, a nursing home, is to sell the house, bank the equity, get an apartment for whomever is still OK, and pay the long term care out of the banked equity. We do not have LTC insurance (our home equity is that) . SS and investments will pay for living expenses (apartment).

Last resort is asking for help from the children.

 

[erkevin]

https://www.payingforseniorcare.com/resources/heloc

 

[Mr._Graybeard]

Just the way reverse mortgages are sold so hard says to me they're a bad deal for the consumer. Otherwise the loan companies wouldn't have to pump them so much.

 

[ExFlyBoy5]

On our last house, we had a HELOC that was available for true emergencies. I was pretty confident with our FI when I retired, but establishing the HELOC prior to retirement was just a mental cushion for us. We have since sold that house and never used the HELOC and didn't do one on our new/current home since we have had excellent growth of our portfolio over the last 5 years.

If things got to the point where we thought we would *really* need the money, then a reverse mortgage *might* be an OK deal, but we have no heirs and no kiddos, so no one would be missing out on the lost value of the house that the bank would get. BUT...we have ZERO desire to do that.

Nonetheless, I think a HELOC is not a bad idea, but take note that they can be closed at anytime and I have heard that during the last RE meltdown, many of these accounts were indeed closed.

 

[pb4uski]

A HELOC is just what it stands for .... home equity line of credit ... a line of credit that you can draw on at will (usually they provide checks/drafts that you write and increase the loan when they are cashed) that is secured by your home equity.

I wonder if one could use a HELOC like a reverse mortgage to pay for nursing home bills as they are due and then if needed sell the home and pay off the HELOC at closing... risk is that you would live and need nursing home care so long that the nursing home bills would utilize all equity but it might be a chance worth taking.

If it could be done that way I'm guessing that it would be less costly and more flexible... our home equity would cover over 4 years of nursing home coverage and probably double that or more since we would have pension and SS still coming in and some or all of that income could be applied to nursing home costs.

Once one has been in a nursing home for a couple years and paying it with a HELOC it would likely become apparent that you are not returning home... at that point sell the house, pay off the HELOC and bank the remainder to go towards future nursing home bills.

 

[leftyfrizzell1963]

I have a buddy who could have paid cash for his house when he downsized and retired, but chose to get a mortgage. He believes he can invest that money instead and get a higher return than his mortgage interest rate. So one could use a HELOC for something like that.

Reverse mortgages are a last report for people who are cash poor and house rich. They also come with high fees. Reverse mortgages should be avoided if possible.

 

[RunningBum]

Does the house have both a sentimental value and usefulness to your daughter? Would she really want it even with a large equity loan to be paid off? Or would she just be better off with whatever is left of the cash from the sale less any LTC costs you had to pay out of the proceeds?

 

[aja8888]

One reason in post #2 to sell the house and get the remaining person in an apartment is to reduce costs of living at that time (RE taxes, upkeep, utilities, insurance, etc).

Another reason by the time one of us goes into assisted living or a nursing home is that the other is probably not too far behind. I see it all the time in our 55+ community.

 

[Sunset]

I have a buddy who could have paid cash for his house when he downsized and retired, but chose to get a mortgage. He believes he can invest that money instead and get a higher return than his mortgage interest rate. So one could use a HELOC for something like that.

....

I did that, after about 3 yrs, sold the stocks and paid off the HELOC.

 

[Teacher Terry]

Our plan is the same as Aja’s. I am 5 years older than my husband and I have more health issues so likely he will take care of me at home. Then he can use the house money for his care.

 

[aja8888]

Our plan is the same as Aja’s. I am 5 years older than my husband and I have more health issues so likely he will take care of me at home. Then he can use the house money for his care.

I see neighbors using home health care around us. It's expensive, and doesn't cover medical stuff. A guy down the street is taking care of his wife with some help from an agency. I hear he pays $30/hour for the aide, which adds up quickly.

 

[Teacher Terry]

My mom took care of my dad and I helped her. This was a long time ago in the 1980’s but respite care was cheap and someone came into the house. They weren’t low income but I think Medicare paid part of it. Thankfully he could be left alone for 8 hours. If someone needs round the clock care a spouse can’t do it.

 

[brewer12345]

I always have a HELOC in place. Credit unions will do them for free and if you don't draw them it costs you nothing. I have used them twice, both times were unusual circumstances and the ability to draw a material sum of cash with a low interest rate was extremely useful.

 

[pacergal]

Our house is our LTC plan also, if needed--sell, bank proceeds to pay for care. Pension/SS/investments for apt. and living expenses for the healthier one.

 

[mountainsoft]

Does the house have both a sentimental value and usefulness to your daughter? Would she really want it even with a large equity loan to be paid off? Or would she just be better off with whatever is left of the cash from the sale less any LTC costs you had to pay out of the proceeds?

Obviously this is something we would have to ask when and if the time comes, but right now our home has great sentimental value for all of us. We literally built it ourselves, with our own hands. Our daughter played a part in the construction too. For the most part it's the only home she has ever known. She's not married and no relationship on the radar, so I don't foresee any reason she would not want our home. It's probably the best inheritance we could leave her.

 

[aja8888]

Obviously this is something we would have to ask when and if the time comes, but right now our home has great sentimental value for all of us. We literally built it ourselves, with our own hands. Our daughter played a part in the construction too. For the most part it's the only home she has ever known. She's not married and no relationship on the radar, so I don't foresee any reason she would not want our home. It's probably the best inheritance we could leave her.

Just remember, a reverse mortgage essentially takes the house out of your hands when the income stream is over. Plus, you will have to pay the taxes and upkeep along the way.

 

[mountainsoft]

Just remember, a reverse mortgage essentially takes the house out of your hands when the income stream is over. Plus, you will have to pay the taxes and upkeep along the way.

Good to know, thanks. That would certainly rule out a reverse mortgage for us.

I appreciate the info.

 

[ER2B]

Reverse mortgage worked out well for my aunt and her son. She used the funds to pay for in home nursing care that was costing her $3300 per week. She recently passed away and her son just received $500k from the proceeds of the sale of his mom's house. Amount received was net of funds not used by his mom and bank fees of course. It helped that the house was paid for and had a market value of $900k. This scenario could have turned ugly if his mom lived longer and required more funds over the reverse mortgage amount. She only had $2000 total monthly income from a small pension and SS.

 

[rk911]

HELOCs are loans that have to be paid back.

Reverse mortgages hawked by old movie stars and dumped politicians are not a great way to extract equity out of your house. Buyer beware!

Our plan, if either of us needs to go into assisted living or, God forbid, a nursing home, is to sell the house, bank the equity, get an apartment for whomever is still OK, and pay the long term care out of the banked equity. We do not have LTC insurance (our home equity is that) . SS and investments will pay for living expenses (apartment).

Last resort is asking for help from the children.

LTC insurance, if you can get it, is the way to go. you may not be able to sell your home when you need to. think 2007/2008. i took out my LTC policy at age 60. my wife can't get it so a portion of our assets are designated for that plus i can direct some of my LTC benefits to her.

 

[Souschef]

I had a HELOC on my condo before I rented it. I used the money to buy our present home. A few years later, I sold the condo and the proceeds paid off the HELOC.
I have heard the fees with a reverse mortgage are high.

 

[ls99]

I just requested a HELOC application from a CU I dealt with. They want $974.25 closing fee and for me to pay for an appraisal.
Dont need the $$$, figured might be good to have ready access to $ from my full paid house.
I think their cost is a bit pricey, will do shome more looking about.
Any recommendations for HELOC source?

 

[brewer12345]

I have been using Pen Fed. They do it for free and the line is interest only.

 

[jazz4cash]

I used Third Federal S&L based in Cleveland but I think they have a minimum draw requirement like many others. I don’t know, but maybe you can repay after 30 days or so?

 

[JillPill]

Just remember, a reverse mortgage essentially takes the house out of your hands when the income stream is over. Plus, you will have to pay the taxes and upkeep along the way.

This is not true. I am a housing counselor - I've been certified in counseling on reverse mortgages and have done the federally mandated counseling for the last 10 years with approximately 1300 clients during that time.

A reverse mortgage allows you to access a portion of the equity in your home - roughly 50% (based on your age- younger borrowers can borrow a lower percentage than older borrowers). You still own your home - there is just a mortgage accruing interest on what you've borrowed. There are also no pre-payment penalties - you could pay the interest accruing if you are concerned about the your heirs getting less money on the sale of home at your death.

The federally insured loans (the vast majority on the marketplace) have an expensive feature - 2% of the value of home is paid out at closing to the Feds to maintain an insurance fund for the product. There is also an origination fee to the lender that is based on value of home - max is $6000 on homes worth 400K and above. This fee is negotiable with the lender and is often lowered or waived by the lender. There are also normal closings costs - recording fees, lenders title insurance etc. - but you pay those for any loan closing.

The clients I see typically are using them to pay off their current mortgage balances as they retire or accessing money to make up the loss in income after death of a spouse. Some very wealthy people also get them to set up a creditline that increases at the interest rate of the loan - the money accessed is tax free.

the loans are best for people who are pretty sure they don't want to sell before death and are not really concerned about whether heirs will get any money from sale of home on their death - childless couples in that position are ideal - but plenty of parents I counsel say they've done enough for kids and if there is money left over from the sale of home on death - great- but they're not going to lose sleep if there isn't.

There are also some new products coming on the market that don't have the fed insurance and no origination fee - they lend a smaller percentage of the home value though.

I wouldn't write them off until you've fully researched them.