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Readers' Options for Seniors Who Need Long-Term Care

June 13, 1993

As an elder law attorney with a practice that focuses on planning for long-term care and a member of the National Academy of Elderly Attorneys, I was surprised to read Robert Bruss' response to a letter from an older gentleman whose wife now needs long-term care (Real Estate Q&A, May 9). Their savings are gone, all they have is their home and they need to pay for her care.

Bruss advised them to borrow from loan sharks or sell the house. He missed two other alternatives.

This couple should investigate applying for Medi-Cal, the only government program that will help pay for the wife's long-term care, and they should investigate a reverse-annuity mortgage (RAM). This couple can have a minimum of $70,740 in cash or other assets, in addition to their home in which the husband is living, and qualify for Medi-Cal. The husband will be allowed a minimum of $1,769 per month in income, which will probably include all of their income from the sound of his letter.

He should investigate a RAM to see if that would be appropriate to supplement his monthly income, but he may not need it once Medi-Cal covers the cost of his wife's care.

Unfortunately, most people aren't familiar with the qualification rules for Medi-Cal. It is not necessary for a husband and wife to spend all their money before the government will help them with the crushing cost of long-term care. These are other alternatives to consider in this situation, and I hope you would inform your readers of this.




In today's issue of the Times, Robert Bruss answered an inquiry from an elderly gentleman for ideas about getting a loan on his home, in which he and his wife have 100% equity, without going to the loan sharks or selling the property. The wife has high medical bills, and they have a limited income. Bruss said they should not have paid cash for the home (which is probably true), and that other than selling the home or going to the loan sharks, he " . . . didn't have any other brilliant ideas to solve your problem."

These people are the perfect candidates for either a life estate (by selling the home to a close relative, with the right to stay as long as they live), or a reverse mortgage (if they have no close relatives who would grant them a life estate). Granted, some reverse mortgages are not as good as they sound, but I know of people who are doing them who are genuinely interested in helping people in this exact situation. There is very little profit in it for the mortgage brokers who are doing these, and they are well-regulated by the government.

These folks fit all of the parameters necessary for a good reverse mortgage, and this will solve their problems.


Monarch Beach

The writer is a real estate agent.


Regarding the Q&A letter . . . pertaining to the elderly couple who paid cash $200,000 for a house 10 years ago. I feel they did the right thing financially. They are money ahead by paying cash.

Say they took out a loan for $160,000 at 9% for 30 years, the payments would have been about $1,287 a month. (The interest rate 10 years ago would probably have been more than 9%.)

Say they invested their $160,000 at 4% in a CD or T-bill, (this money would have to be available to make the monthly payments).

The couple said they had a small pension and Social Security, which appears it would put them in the 15% income tax bracket. After 10 years they would still owe approximately $143,000 on the $160,000 loan (the payments would be mostly interest).

After 10 years of payments their $160,000 would be down to about $64,000 and that includes 4% interest on the original $160,000, which decreases each month, and it also includes 15% on the interest from the payments as an itemized deduction on income tax.

By paying cash they still have the full value of their home, instead of owing $143,000 - 64,000 = $79,000.


Make Refinancing Easy

During the past five years or so, many people purchased houses at fixed rates and are now unable to refinance them because the value of their houses have decreased. Although they are able to make these mortgage payments now, they cannot refinance in order for them to make smaller monthly payments. It does not make sense that a bank will let you pay the high present monthly payment and not refinance your mortgage at a lower rate to help you and the economy.

I think that we need legislation that would allow people to refinance at a lower rate without going through the normal refinancing paperwork and appraisal costs and let people refinance by just paying a small fee or points.


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