Fair Deal/Nursing Homes Fair Deal Scheme and Life Loans

Brendan Burgess

Brendan Burgess

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I didn't understand this discussion on the Joe Duffy Show just now, so I googled it and found this new (to me anyway?) website.

fairdealadvice.ie

Life Loans And Their Implications On Long Term Care Funding

At Fair Deal Advice we from time to time come across older persons looking to apply for the Fair Deal who have previously taken out Life loans.
fairdealadvice.ie fairdealadvice.ie

As many of these loans are taken out to fund lifestyle the HSE will not deduct the balance of the loan against the property value when calculating the property asset contribution. They will in most case refuse to give a loan against the property to help fund the cost of care contribution. This can result in the Applicant not having the funds to pay for their care cost contribution. While single applicants may be able to sell their homes, couples will not have this option.

So, if you or your relative are considering taking out a life loan I would urge you not to. That new car and new kitchen that you may have always wanted and for which you may be looking to take out the Life Loan for may have serious implications in your ability to fund yours or your Partner’s long-term care in the future.

How does a Life Loan work out in practice in processing a Fair Deal application?

The HSE will assess your means to see if you need financial assistance.
If you have a house, they will lend you 7.5% of the value of the house for three years maximum. They will ignore the balance due on the Life Loan.

If you have no house, or if you have a big mortgage on the house, so what?
 
Interesting topic.
My lay understanding. Assuming a single person here for simplicity.

If you've a house worth 1m, the asset value for assessment is 1m, regardless of whether you've a loan secured against it or not.

When it comes to income, generally there's an allowance for the interest charge on loans secured against your home. This deduction may not be allowed in the case of a Life Loan, so your gross income would be counted.

The real problem for people is if you have no cash to pay the asset contribution charge (the 7.5% per annum for 3 years). So you need to come up with 75k per year, for 3 years.

The normal route for most people is to take a Nursing Home Loan. This defers the payment until you die, and the balance increases at the rate of CPI. To secure this loan the HSE / Revenue put a charging order on the property. If you have a Life Loan, or any other mortgage, that means the charging order is a secondary charge. If your LifeLoan, including accrued interest, is a high LTV, it makes this secondary charge worthless, and there is no security for your nursing home loan. So you may be refused the loan. You have to pay the contribution, but you've no cash, and no way to get a loan.

One option at that point is to sell the home, repay the life loan, and your remaining net assets will be assessed. But as the asset is no longer your home, then the 3 year cap no longer applies.

Given the maximum amounts that can be borrowed now against property, based on age, I'm not sure if it will be as much of an issue in future as it has been in the past.
 
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Red

That is great.

Thank you very much.

So, really it encourages people who move into a nursing home to sell their home, which might not be a good idea for their kids, but it's a good idea for the taxpayer.

Brendan
 
That's my very simple understanding.

Of course it's far more complicated if they're a couple, and only one person is going to a nursing home, as the decision to sell is harder. But the amount needed is only half.
 
If Persons or their Families are interested in preserving estate values and the person or their Parents have taken out Life loans I would recommend if the Person or Parents are in a Nursing Home to sell the Home immediately and repay the loan and stop further interest accruing. The benefit of holding onto the house to avail of the 3 year home exemption rule is often over estimated with many people in the Fair Deal passing away befoe they get to avail of the exemption. In the meantime interest will be still accruing on the Life Loan and if cash is having to be used to pay the property asset contribution (At value of the house without a deduction for the Lifeloan) and no interest deduction on income then there is no benefit in holdling onto the property.

Once the property is sold they can ask for their assets to be reassessed and they will now have a reduced contribution to care as they will be paying the asset contribution on the net proceeds from the sale. If someone had a house worth €500,000 and a Lifeloan of €250,000 this will save them €18,750 per annum in asset contribution if single or €9,375 if part of a couple on their asset contribution alone.

Alternatively some of our Clients Children have bought their Parents Home and the proceeds have been used to repay the loan before it took 100% of the value. If someone is part of a couple or are single and this option is not available well then they will have to live with the consequences of taking out the loan and what will be left in their estate when they pass away is what will be left.

www.fairdealadvice.ie
 
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Fairdealadvice. said:
The benefit of holding onto the house to avail of the 3 year home exemption rule is often over estimated with many people in the Fair Deal passing away befoe they get to avail of the exemption.
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This is true. I looked at the numbers once (I can't find them now) and only a reasonably small minority of people in nursing care made it longer than the three years.
 
Brendan Burgess said:
If you have a house, they will lend you 7.5% of the value of the house for three years maximum. They will ignore the balance due on the Life Loan.

If you have no house, or if you have a big mortgage on the house, so what?
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How does this actually work. Take a nomal house Value 300,000. 7.5% is 22500. X 3 years = 67500. Does this mean the HSE pays 67500 for nusing home care. And that 67500 is paid back to the HSE when the house is sold?

If you've no asset or no money doesn't the State pay 100% for your nursing home care.

On Joe Duffy they said it costs 2K a month in a nursing home. That's 24K annually. So you get about 3 years of cae for the 67.5K or thereabouts.

Also one Listener mentioned about the Fair Deal, that if the parents could prove they had done repairs to the house then the Life Loan would be discounted. But the Listener's parent's couldn't prove it as they had no receipts.
 
I am not an expert on the Fair Deal scheme. But to me, this anti-LifeLoan stuff looks like scaremongering. The words “may” and “might” appear a lot.

The main downside appear to be the fact that a mortgage reduces the assessable value of one’s home whereas a LifeLoan doesn’t. So what? The same would be true of a Home Improvement Loan from a Credit Union.

The other main downside seems to be the risk of the HSE/State not being able to take a secondary charge on the property. Again, I’m sceptical about that. As with any loan, it should be done at prudent levels. And if the family are that concerned about it, chip away at it and at least cover the interest so the principal doesn’t increase.
 
www.ageaction.ie

Fair Deal - Nursing Home Support Scheme

Fair Deal is the Irish Government mechanism to help make nursing home care affordable and to prevent the need to sell the family home while the older person is in the nursing home. Basically it looks at the care needs and income of an individual to see if they qualify for the Fair Deal. The more...
www.ageaction.ie www.ageaction.ie

The following deductions are also allowed against income:

  • Where a person owns their principal residence, interest on loans for the purchase, repair or improvement of the principal residence;
If an individual has very limited financial means the State will either pay the full cost of the care or large proportion of it.

It is a basic principle of the NHSS that nobody will pay more than the cost of their care. The portion of the value of the family home that will be due is capped at 7.5% per year for a maximum of 3 years.
 
There are implications for the Fair Deal in taking out a life loan.

I thought Brendan did well on Liveline but let's not over-react to the bias displayed by Joe by excessive bias in favour of Brendan.

For example, when Brendan was ambiguous as to whether he would advise people of the implications on Fair Deal of a housing loan, I think he made a mistake. The best position is to provide a client with all relevant information and then let the client decide. This error was then compounded when Brendan tried to suggest that people should take up the complicating factor that life-loans engender with the FD authorities. [You can't make a representation about a policy that you don't know anything about and/or taking out a life-loan on the basis of successfully lobbying for a change in public policy, ain't smart!]

In general, it must be said that Brendan did well. The number and timing of calls for help (read add breaks) that Joe needed is evidence of that. Arguably, however, Joe did well too. He is selling controversy and he sold a lot and he kept his target market, the poor craythurs, happy as Larry and as horrified as Henry.
 
Fairdealadvice. said:
Once the property is sold they can ask for their assets to be reassessed and they will now have a reduced contribution to care as they will be paying the asset contribution on the net proceeds from the sale. If someone had a house worth €500,000 and a Lifeloan of €250,000 this will save them €18,750 per annum in asset contribution if single or €9,375 if part of a couple on their asset contribution alone.
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Hi Tom that is an excellent piece of advice. I have put it in a table to make it clearer

Let’s deal with a single person as it’s easier.

He has an income of €15,000 a year

He has a house worth €500k

He has a life loan of €250k

The nursing home costs are €60k a year

5300



Let's say that the person is in a nursing home for 6 years, the next three years would look like this:

The 7.5% of the home is limited to the first three years and is ignored after that.

5301
 
SGWidow said:
For example, when Brendan was ambiguous as to whether he would advise people of the implications on Fair Deal of a housing loan, I think he made a mistake. The best position is to provide a client with all relevant information and then let the client decide. This error was then compounded when Brendan tried to suggest that people should take up the complicating factor that life-loans engender with the FD authorities.
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Hi Widow. Agree with the first part. I was taking shots from all sides and of course, I would talk about the implications for Fair Deal and the implications for Social Welfare. I have no idea why I said probably.

I don't agree with the second part. The Life Loan is a good product. If the Fair Deal scheme is faulty - and I don't think it is - then that is not a problem for the Life Loan product.

And the criticism should be made of the Fair Deal Scheme and not the Life Loan.

It's very very hard to articulate all that on a live show with about 5 people shouting at me at the same time.

Brendan
 
i took out a life loan in 2006 my spouse is now gone into full time care the HSE pays a very good contribution to the cost of her care but has refused the loan to cover the cost of my contribution because of the life loan on the house my contribution which is €205 per week I cannot pay this as I only have my state pension to live on I am under pressure from the nursing home to pay up but I just do not have the money I know a few people facing this problem is there any solution as I cannot afford to move if I sell the house and pay off the life loan I will not have enough to buy an other property in my area and my fear is that I will end up homeless
greenhedge
 
greenhedge said:
is there any solution ................
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Is renting a spare room/s an option ?

You can get up to €14,000 annually tax free that is almost €270 weekly.

https://www.citizensinformation.ie/en/housing/owning_a_home/home_owners/rent_a_room_scheme.html

Thinking about this a bit more, while up to €14,000 may be exempt from income tax, it would be income for Fair Deal’s financial assessment, as such 80% of half would go towards the cost of your spouse's care. You could still be better off by up to €8,400 annually or €161 weekly.
 
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