A reverse mortgage shouldn't be used to pay for long-term care policy
Many homeowners should reject offers to take a reverse mortgage against their home in order to pay for long-term care insurance.
Q. Several months ago, you wrote about the need for people with a lot of assets to purchase long-term care insurance, which would pay for some of their expenses if they go to a nursing home. I have received an offer in the mail that would let me pay for a long-term policy by taking out a reverse mortgage on my home. Is this is a good idea?
A. Probably not. Most experts agree that buying long-term care insurance is a wise idea for relatively affluent people who need to protect themselves against the cost of a long illness.
The catch is that if you're already old enough to qualify for a reverse mortgage (the minimum age is usually 62), the cost of buying the insurance so late in life might be extraordinarily high. Also, the fact that you need to borrow against your home to buy a policy because you don't have enough cash to pay for it could suggest you don't have enough assets to justify purchasing such insurance in the first place.
"People who need reverse mortgages are very different from the people who need long-term care insurance," said David Certner, director of federal affairs for AARP. "If your assets are so small (that) you have to take out a mortgage loan to buy the insurance, it's probably not right for you."
AARP's terrific Internet site (www.aarp.org) includes lots of valuable information about both long-term care insurance and reverse mortgages. You can also order free copies of the AARP's various booklets by calling the nonprofit group toll-free at (800) 424-3410 or by writing to AARP, 601 E St. NW, Washington, D.C. 20049.
Q. We accepted an offer to sell our house that includes a provision that we provide the buyers with an $8,500 credit at the closing to cover their mortgage points and other closing costs. As it turns out, their closing costs will total only $7,200, and their lender will not permit us to give them the difference in cash. Is this typical? How can we solve this problem?
A. Yes, it's typical for lenders to limit the size of the credit a seller may offer to an amount that will not exceed the buyer's actual closing expenses. Many lenders also say the credit may only be used to cover the buyer's one-time-only "nonrecurring" closing costs, such as loan points and title insurance, rather than for "recurring" costs, like hazard or mortgage insurance, that the buyer will have to pay year after year.
Because the lender won't permit you to make up the $1,300 difference by writing a check to the buyer, the simplest solution might be to drop the agreed-upon sale price by the same amount. For example, if you agreed to sell the house for $200,000 and provide a closing credit of $8,500, you could amend the contract so it calls for a sale price of $198,700 and a credit of $7,200. Doing so would allow the buyer to close the sale without having to come up with additional cash and would permit you to walk away with the same amount if the terms of the original deal were left intact.
Q. I started to refinance my home late last year and paid $275 for an appraisal. I then switched to a lender that is offering a much better deal, but the new lender says I must pay $250 for a new appraisal because the woman who did the first report is not on the new lender's list of "approved" appraisers. Is this a legitimate request, or is the new bank trying to squeeze me for an extra $250 to pad its profits?
A. The new lender's demand that you pay for a new appraisal is legit. Most lenders work only with a preselected group of appraisers who have met the institution's internal set of standards and then established a record of providing the lender with accurate reports in the past.
Although the new lender is demanding another appraisal, there's a chance it might be willing to pay for the report itself instead of making you pay for it out of your own pocket. You won't know if you don't ask, so ask! The worst the lender can say is "no."
Even if you have to pay the $250 yourself, the fact that your letter says the new lender is "offering a much better deal" than the old one suggests you would offset the cost of the new appraisal by lowering your other upfront refinancing costs or by getting a much lower interest rate over the life of the loan.
• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405.
© 2014, Cowles Syndicate Inc.