Chicago Tribune: Reverse Mortgages Becoming Better Options for Seniors

The “windy” city’s largest newspaper recently printed this article. I was just thinking how lovely it would be if our next national reverse mortgage lenders convention were in Chicago, they have some pretty amazing restaurants, not that they let us out much from seminars when we attend one of these conventions, maybe I could stay a little longer !  I like the citizens’ feistiness too, here is a picture of seniors protesting cuts to Medicare. We boomers and our protests….carry on!

Senior citizens in Chicago Illinois protesting cuts to MediCare

If you are not interested in this article but would like to learn more about my 7 years of reverse mortgage experience and local Grass Valley Reverse Mortgage office click here:  http://www.SierraFoothillsReverse.com or even easier, just call me: 530-497-3010.

Ok, I’m back on task…Reprint form Chicago Tribune recent article:

Reverse Mortgages are Becoming a Better Option for Seniors

Elliot Raphaelson, Tribune Content AgencyThe Savings Game

In past columns, I have generally been skeptical of reverse mortgages. However, the Reverse Mortgage Stabilization Act of 2013 introduced more customer safeguards. And some lenders are offering better terms and lower upfront costs.

If you do your homework, you might find a reverse mortgage that provides you with benefits that other financing alternatives do not provide. A more reliable line of credit is one of the more important potential advantages.

I highly recommend “What’s the Deal with Reverse Mortgages?” (People Tested Media), a new book by Shelley Giordano, principal of Longevity View Associates, a reverse mortgage consulting firm, and chair of the nonprofit Funding Longevity Task Force. It will help you understand options such as fixed vs. variable loans, the nuances of using credit lines and all of the mortgage fees.

Giordano discusses the merits of home equity lines of credit (HELOCs) vs. those of home equity conversion mortgages (HECMs, FHA-insured open-ended reverse mortgages). HELOCs, she argues, have significant disadvantages. Borrowers have to repay principal and interest, whereas reverse mortgage borrowers are under no such obligation. Financial institutions can cancel HELOCs if they believe that borrowers have insufficient income or assets. Borrowers with a HECM line of credit don’t have this vulnerability.

The Reverse Mortgage Stabilization Act of 2013 provides some safeguards for both consumers and lenders. The act introduced financial assessments as the basis for HECM loan approvals. These assessments were developed to ensure that individuals would have the financial wherewithal to maintain their homes, pay real estate taxes and homeowner insurance. Prior to this reform, reverse mortgages had a high rate of foreclosure. As long as individuals can meet these requirements, and maintain residence in the home, they will not face foreclosure.

The Act of 2013 also addressed a prior disadvantage. Previously, if the only individual named in the mortgage agreement died, the surviving spouse would have to repay the outstanding loan in order to remain in the home. Under the new provisions of the act, a non-borrowing status (NBS) was created that allows the widow(er) to defer due and payable status provided that within 90 days after the death of the last surviving borrower, he or she establishes legal ownership or other ongoing legal right to remain in the property.

For seniors looking to alleviate tight budgets, I believe that options other than reverse mortgages should be considered, such as downsizing or selling and renting an apartment. Consider your health. Reverse mortgages lose their primary advantage if you cannot stay in the residence over the long term. If it is important for you to leave home equity to your heirs, then reconsider using a reverse mortgage, because there is no guarantee that there will be any equity left after your death.

(c) 2015 ELLIOT RAPHAELSON. DISTRIBUTED BY TRIBUNE CONTENT AGENCY, LLC.

Copyright © 2015, Chicago Tribune
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Wall Street Journal: Reverse Mortgages Can Help Buffer Against Market Swings

golf swingNo No I’m not writing about that kind of swing, (but wow, look at all that green grass, in our drought stricken dog days of August, this looks inviting.)

Seniors on a Swing  No, No, I’m not writing about THAT kind of Swing……

I’m writing about a trend I see with my reverse mortgage clients and that was echoed in the recent WSJ article below:          The reverse mortgage credit line being utilized as a valuable tool in an overall retirement plan strategy: to have it on standby when the stock market takes wild swings like it has the last few weeks, to supplant monthly income from the credit line and halt  portfolio draws when it makes sense to halt portfolio draws for a period of time while the market has time to stabilize and recover. This use of the RM credit line as a safety net buffer keeps clients’ retirement life style uninterrupted with a sudden reduction in stream of income.

Once thought of as a “loan of last resort”, increasing numbers of savvy financial planners are encouraging seniors to establish a standby reverse mortgage line of credit as a hedge against the market swings such as we saw last week. Reverse Mortgage Daily expanded upon the WSJ article and I’ve included it here for your review:

(If you would like to skip the article and go directly to information on my Grass Valley, CA reverse mortgage office, and services I offer here locally to Nevada County please click on this link: http://www.SierraFoothillsReverse.com. As Nevada County’s ONLY office specializing exclusively in reverse mortgages, I bring to the table 7 years of RM experience and over 400 successfully navigated and closed reverse mortgage loans)

WSJ: Reverse Mortgages Can Help Buffer Against Market Swings

Reverse mortgages have a place in the conversation about retirement and market swings, prompted by the recent global selloff resulting from Chinese currency pressures. At least, that’s the message presented by Prof. Wade Pfau, of American College of Financial Services in Bryn Mawr, Pa., who was interviewed by the Wall Street Journal this week.

Buying into market dips may be prudent for young investors, WSJ’s Money Beat blog notes, but for those approaching—or already in—retirement, the same rules do not apply.

“That’s not merely because stocks can take years to recover from losses and you have fewer years left as you age,” columnist Jason Zweig writes. “The problem is what retirement researchers call ‘sequence risk.’ The order in which stocks earn good or bad returns can matter—a lot.”

If they rely solely on stock withdrawals, retirees can be forced to sell their investments during market downturns, which can take a toll on the value of their assets.

That’s where a reverse mortgage could come in for some, Pfau tells the WSJ.

“Another possibility, [he says], is to consider taking out a line of credit under the Home Equity Conversion Mortgage program guaranteed by the federal government, using it only during periods when the value of your stock portfolio is declining,” the article writes.

The strategy is one that some financial planners have recommended as a “standby” strategy to weather market swings.

“This way, you reserve the right to borrow against your home at reasonably competitive rates,” WSJ writes. “But you would draw on the money only at times when you would otherwise have to lock in losses on your stock portfolio.”

Written by Elizabeth Ecker http://www.reversemortgagedaily.com

Comments by Shawna McDonald, Loan Officer, NMLS 271335 Sierra Foothills Reverse Mortgage of Beautiful downtown Grass Valley: 412 E. Main Street, Grass Valley, 530-497-3010

Reverse Mortgage Mid-Year Round Up ~ 2015

Seniors at the fair 1 It’s been a great week, the Nevada County Fair rocks !

seniors at the fair 2  Ok, back to business:

If you’d like more information about my local bricks and mortar reverse mortgage loan office serving Nevada County, Grass Valley, Nevada City and Penn Valley, click on this link: http://www.SierraFoothillsReverse.com.

      I’m always available with a same day return phone call: (530) 497-3010.

Here’s my newest blog post which will appear shortly in the local Union newspaper:

Reverse Mortgage Mid-Year Round Up ~ 2015

It’s true, today marks more than “mid-year”, but time flies so fast. I thought it a good time to discuss what the reverse mortgage landscape looks like after the new financial assessment requirement had been in place for a few months and discuss a recurring question I hear from clients:

The new Financial Assessment Requirement: Prior to April of this year a senior’s continuing ability to pay property taxes, insurance and (HOA dues if applicable) post completion of a reverse mortgage was not in question with the lender or HUD. (Housing and Urban Development sets the rules for reverse mortgages, FHA insures the loan). Starting in late April of this year all loan officers beginning a reverse mortgage loan application, be it for purposes of establishing a credit line, paying off an existing loan, or a purchase reverse, are required to document income and on-going household debt obligations to determine if the borrower(s) have sufficient monthly residual funds to budget for payment of property taxes and insurance. If not, we would, as part of the loan, need to set up a lifetime set aside for taxes and insurance, an “escrow” type of account.

I’m happy to report that none of my borrowers coming in to initiate a reverse mortgage and falling under the “new rule” have been required to set up such an account, I was able to document that they had were sufficient retirement income and history of on time payment for taxes and insurance. The new rule requires more work on my part, a bit of financial records digging for borrowers, but all in all, not a big deal.

Living Trusts, Revocable or Non-Revocable: Having just lugged a large trust binder into my office for me to scan, my borrowers were curious as to why a reverse mortgage lender needs to review a complete copy of their trust. The lender needs to determine if the trust is revocable, as in, can a change be made to the trust? If the trust is revocable the borrower(s) will sign a document at loan closing that states their trust recognizes the reverse mortgage obligation to be paid off upon the passing of the borrower(s). If the trust is non-revocable a reverse mortgage cannot be done, most trusts however are revocable.

Shawna McDonald Loan Officer, has successfully completed 100’s of reverse mortgages and is approved with 8 reverse mortgage lenders, ensuring clients receive low fees and great rates. Her full service office, Sierra Foothills Reverse Mortgage, is located at 412 E. Main Street Suite N, Grass Valley, (530) 497-3010. Her website is www.SierraFoothillsReverse.com.

The opinions expressed here are solely those of Shawna McDonald, Loan Officer/Real Estate Broker. Copyright © 2015. NMLS #271335 BRE # 00585530 DBA Sierra Foothills Reverse Mortgage and Borba Investments Inc, DBA MLS Reverse Mortgage Auburn, CA NMLS #76801 BRE #01456165 ~ HUD approved lender.

New Article Goes Main Stream: Pros and Cons of a Reverse Mortgage

seniors hiking

Want to skip the article and learn more about Reverse Mortgages from a Grass Valley Specialist? Visit my website

http://www.SierraFoothillsReverse.com

I must admit, in the seven years I’ve specialized in reverse mortgage there have been some articles published about reverse mortgages that were so full of inaccuracies that it was truly jaw dropping. I had wished I could call the editor or writers of such articles and tell them to “take a hike”. In recent years our national organization, NRMLA: National Association of Reverse Mortgage Lenders, has become proactive in contacting news organizations to clarify or rebut articles which are untrue, misleading or carry outright mischaracterizations of the rules and options of a reverse mortgage. I think these efforts have been fruitful because in the last year I see news articles which are not necessarily “rah rah” reverse mortgage, but balanced and accurate about this loan product. I’ve included in this blog post one from the publication “Equities.com”  which is a concise and accurate discussion of the pros and cons of a reverse mortgage.

Yesterday I met with several home owners who were considering putting up there homes for sale so that they could unlock the thousands of dollars they have accumulated as home equity. One came to me via a referral from a past client, the other from a financial planner. Both were single individuals who dearly love their homes but had not previously considered a reverse mortgage because they were a bit “scary”. My monthly workshop seminars were not at convenient times for them,  so they came into my Grass Valley office and I spent and hour with each client explaining the program’s history, current status, the overall program rules and safeguards, and the types of reverse mortgage loans now available that would fit their particular retirement goals, then sent them off with an information packet and dvd to document and review what we discussed. The big sigh of relief and frankly amazement both clients expressed as they left my office was a professionally gratifying to me. Why? Because while a reverse mortgage may not be the path they choose, one or both may still decide to sell their home to unlock their accumulated equity rather than do a reverse mortgage to tap into it, I was pleased that two more individuals walked out of my office knowing that a reverse mortgage is no more “scary” than any other loan is “scary”.

MY NEXT SEMINAR WORKSHOP is on Thursday August 13th, catered lunch is provided, we actually have a fun and lively time, give me a call if you’d like to register to attend. (530) 497-3010,

Want to learn more about my credentials and back ground? GO TO:

http://www.SierraFoothillsReverse.com

Here is a reprint of the article I spoke of above

THE PROS AND CONS OF A REVERSE MORTGAGE, reprint from http://www.equities.com

For the past few decades, you have gradually invested in your home in the form of interior renovations, exterior upgrades, steady overall maintenance, and of course, the diligent payment of your monthly mortgage every month. Through the years, as your total mortgage balance decreased and your equity increased, you began to indulge in the sort of daydreams that are typical when anticipating retirement. Your mind often wandered to visions of strolling along the beach as you feel the sand between your toes, sprawling out on a hammock as the sunshine kisses your face, and laughing lightheartedly as a cool breeze plays with your hair. With your 9-to-5 job obligations behind you, a home that has been paid off, and your children all grown-up and self-sustaining, you are free to focus on the new adventure of this next stage in life. However, one question may come to mind more often than you would like: Can I afford the retirement I want?

Retirement and the Reverse Mortgage

Because of the equity you have built up in your home, your biggest asset is now holding the answer to a financially stable retirement. Your first step to financing your lifestyle through home equity is to research the best tool to access it. To access home equity, borrowers typically have three options:

  1. Sell the home
  2. Assume a 2nd mortgage
  3. Take out a reverse mortgage loan

For many senior homeowners who want to age in their homes and who do not want to get locked into paying monthly mortgage payments again, the third option has proven to be noticeably popular.

reverse mortgage is defined as a loan that helps senior homeowners who are 62 years or older access a portion of their home equity to use as cash. Of course, there is so much more to this loan than this simple definition. Since its inception in the early 1960s, this loan has evolved into a powerful financial tool in retirement. For the past half century, senior homeowners have been utilizing this option to access their equity and achieve the type of retirement they always wanted. However, when considering the reverse mortgage loan, or any financial product for that matter, it is always a good idea to educate yourself on the pros and cons. Knowing the advantages and disadvantages can help you to determine if this loan will be a good fit for your needs.

The Pros and Cons

The following are some of the pros and cons associated with reverse mortgage loans.

PROS:

  • You may age in place while accessing a portion of your equity as cash.
  • You retain ownership of your home as long as you fulfill all loan obligations such as paying property taxes, homeowners insurance, and basic home maintenance and repairs.
  • The most common reverse mortgage, called a Home Equity Conversion Mortgage (HECM) loan is government insured by the Federal Housing Administration (FHA) which covers repayment of any difference between loan balance and home value.
  • Consumers are protected from owing more than the value of the home when sold.
  • This loan is non-recourse, which means the home is the only asset the lender can take to repay the loan.
  • Costs, such as the mortgage insurance premium that comes with federal insurance, may be rolled into the total balance of the loan.
  • Loan repayment is deferred to whenever the borrower permanently leaves the home; thus no monthly mortgage payment is required.
  • You may use reverse mortgage loan funds for anything you desire, including home repairs, renovations, and upgrades.

CONS:

  • The cons of a reverse mortgage included the fact that you may not live anywhere else other than your home for more than 12 consecutive months. If you do, the loan becomes due and payable.
  • Depending on an assessment of your financial profile, you may be required to set aside a portion of your funds to pay your financial obligations.
  • If your heirs want to keep the home, they will need to find an alternative method to repay the loan that does not involve selling the property, such as taking out a new loan to repay the reverse mortgage balance.
  • A lien will be placed on the home until the loan is repaid at maturity.

Is the Reverse Mortgage Loan Right For You?

Along with reverse mortgage pros and cons, it is also important to know the circumstances in which this loan may or may not be a good fit.

There are a few instances where this loan may not be the most beneficial solution. Because one of the loan terms include a requirement that you reside in the home as your primary residence, if you anticipate the possibility that you may move away in the foreseeable future, such as into a nursing home or a family member’s home, the loan may become due and payable.

Moving out of your home soon after completing the loan is also inefficient due to the closing costs you had already spent. In addition, if you are not comfortable with paying, or cannot afford to pay your property taxes, homeowners’ insurance, and basic home repairs then this loan may not be for you. Since there are no monthly mortgage payments required for a reverse mortgage, failing to fulfill these other financial obligations may lead you to defaulting on the loan.

However, if you desire to access a portion of your equity while aging in place, you have no plans to sell your home or move out in the foreseeable future, and you want to eliminate your monthly mortgage payments, then a reverse mortgage may be the financial solution for you. With features that allow you to defer repayment, it is a versatile solution to increase your monthly cash flow and supplement your social security income and pension – all with the protection of federal insurance.

Now that you know more about the pros and cons of a reverse mortgage, as well as the circumstances regarding whether this loan may or may not be a good fit, you can make a more educated decision on if it may benefit your needs. For more help, speak with a reverse mortgage expert from a reputable industry lender. Armed with their knowledge and yours, you will be well on your way to funding the retirement of your dreams.

Reverse Mortgages Provide Alternative To Long Term Health Care Insurance

Seniors swimming 2 This is how I want to see myself for a very long time, a senior, active and enjoying life, exercising with a friend, a water noodle, and oh YES, a flower in my hair. (You know what generation I’m from!). But at 62 years of age I know there might come a time when I will need long term care, and I do not want to burden my only child with this task. I did not think to start paying premiums on long term care years ago, when it would have been affordable so what would I look too ten years from now? A reverse mortgage of course. I would use a credit line to have care givers come into my home, a “facility” is not for me, it’s not for many folks.

Here’s a great article validating a strong trend I see in my clientele of late, folks whose financial advisor recommends a reverse mortgage credit line be set up now, while the borrower is of sound mind and body, to have on stand by if needed. Remember, you continue to be the owner on title, a reverse mortgage is simply a loan. If used, it needs to be paid off at the time of the house sale, remaining equity goes to you or your heirs(s). But unlike a regular equity line. it requires no monthly payment, can NOT be reduced or closed at the whim of the lender, it is your life time loan as long as property insurance, taxes and any HOA dues are kept current. Here’s the article from Financial Advisor Magazine:

                                 The Boomer Effect: How Will So

                                Many Seniors Get Long-Term Care?

June 23, 2015

According to Pew Research, more than 10,000 baby boomers are turning age 65 each day in the United States — and this trend related to the largest generation of seniors in history will continue on for the next 15 years. To frame the scope of this social issue a bit further, consider these additional startling facts:
1. For couples, there is a 91 percent chance that one spouse will require care. (“Do Retirees Need Long-Term Care Insurance?” USA Today, Sept 10)
2. A majority of Americans falsely believe that their medical insurance will pay for long-term care. (U.S. Department of Health and Human Services)
3. The cost of senior care may range from $29,640 per year for in-home care to more than $94,170 per year for convalescent care. (John Hancock, Long-Term Care Cost of Care Survey)
4. Less than 3 percent of Americans maintain long-term care insurance. Stated another way, more than 97 percent of Americans make no advanced plans for their eventual senior care needs. (American Association for Long-Term Care Insurance)
As an financial advisor, you may want to consider how your aging clients’ care needs could affect their financial plans, and not only that, but how your younger clients may be impacted by their aging parents’ challenges. Advanced senior care planning can open up a variety of opportunities for advisors and their firms to add new wealth management clients — aging baby boomers as well as the adult Gen-X children of your senior clients.
It is vitally important to gain the business of the adult children of your senior clients now. A 2014 Vanguard study (“Retaining Heirs: Connecting with the Next Generation of Clients”) estimates that a whopping 95 percent of next gen investors plan to fire their parent’s advisor when the parent’s estate transfers to them. So, regardless of the level of service and attention advisors provide their boomer clients today, those who don’t have a plan to bring heirs in as clients early-on may be left out in the cold.
To stay ahead of the trend and to retain and grow business, the easiest way for advisors to secure heirs as clients is to begin serving them prior to the wealth transfer. Like anyone you do business with — a mutual fund wholesaler or your auto mechanic — customer loyalty comes when the client places value on the product and their service provider. So how can advisors engage heirs and provide value today?  By solving what is quickly becoming a financial planning challenge for many unaware Gen-Xers before it overtakes their financial security: the likelihood that one or more of their parents will require long-term care.
A U.S. Department of Health and Human Services (HHS) publication entitled, “Who Needs Care?” states that 70 percent of Americans will require some form of care in their lifetimes. Going with the notion that senior care is one of the most insurable events in our lives, why is it that more than 97 percent of the U.S. population fail to plan ahead? According to another HHS publication, “What is Covered by Health and Disability Insurance?” the first reason is a general misconception that long-term care will be paid by the senior’s medical insurance. Some may also assume that government assistance will be provided when the time comes. The reality is that Medicaid will pay for most long-term care patients in the U.S., but coverage is generally targeted to individuals with lower income and fewer assets. For some boomers, even after spending down assets, Medicaid looks to see if assets were liquidated to qualify, and uses a recapture provision to get repayment from the estate. Oftentimes, there is nothing left for the heirs after an extended convalescent stay.
In light of these facts, it’s important that advisors familiarize themselves with the various forms of senior care. Most know about in-home care, assisted living and convalescent care. However, most aren’t aware that in-home care may provide some distinct advantages in certain situations.
A report entitled, “Home — the Best Place for Home Health Care,” by the Joint Commission Home Care Program states, “Not only can care be provided less expensively in the home, evidence suggests that home care is a key step toward achieving optimal health outcomes for many patients. These studies show that home care interventions can improve quality of care and reduce hospitalizations due to chronic conditions or adverse events.”
Clients over age 60 may have missed the window to purchase affordable long-term care insurance. Each year after age 60 premiums become extraordinarily high and it becomes less likely your client will medically qualify. If your client isn’t affluent, senior care costs could quickly impact their retirement income, requiring portfolio liquidation or financial assistance from adult children to ensure the necessary cash flow.
Advisors can use this opportunity to serve both clients and heirs, establishing value and gaining trust to engage heirs as new clients. Start by having a senior care planning conversation with your age 60+ clients.  Then review the extremely high long-term care statistics and understand how senior care may affect their financial plans and ultimately, those of their heirs. Next, determine the best solution to cover the cost of care.
When long-term care insurance isn’t an option, consider a standby Home Equity Conversion Mortgage (HECM) line of credit. A HECM loan, commonly known as a reverse mortgage, is a government-insured mortgage for those aged 62 and over. Borrowers are not required to pay monthly loan payments as long as they live in the home as their primary residence and continue to pay taxes, insurance and home maintenance. The loan becomes due when the last borrower has left the home. A unique feature of the HECM reverse mortgage many are surprised to learn about is its growing credit line. When used as a standby, the unused portion grows at a rate of 1.25 percent over the interest rate, compounding monthly.  As the borrower ages, the reverse mortgage line of credit continues to grow, providing access to significantly more funds. This makes reverse mortgage a superior funding tool versus a traditional HELOC, which doesn’t grow over time and requires monthly payments. Since senior care needs often come in the form of an unexpected broken hip, heart attack, etc., the best strategy for millions of seniors may be to set up the standby line of credit in advance, so funding is ready when needed. In the meantime, the credit line grows, steadily increasing available funds over time (fig. 1).

   

Once your client has a senior care funding plan in place, ask to bring their adult children into the conversation. Meet together, if possible, and show them how this plan protects them financially by mitigating the need to assist parents with care. For assistance in explaining the senior care planning discussion, check with an established and reputable reverse mortgage lender to see what resources they have available to help walk  financial advisors through determining if a reverse mortgage is a viable solution for their senior clients

This article can be found on the Financial Advisor Magazine website:

http://www.fa-mag.com/news/the-boomer-effect–reducing-the-impact-of-senior-care-on-the–largest-generation-in-history-and-their-gen-x-heirs-22200.html?section=40

Huff Post Lists 6 Undeniable Benefits of a Reverse Mortgage

seniors kayaking
NAVIGATING THE WATERS OF RETIREMENT, REVERSE MORTGAGES BECOME MORE MAINSTREAM
THAN EVER BEFORE

Here is what the Huffington Post article said, with a couple of  editorial notes from me:

A reverse mortgage is a feasible financial vehicle that is used by plenty of older Americans to access cash from their home’s equity. We’ll outline six undeniable benefits these home loans offer.

For older Americans age 62 and up, they can tap into their home’s equity using a reverse mortgage. According to the Washington State Department of Financial Institutions, there is a long list of benefits that these reverse mortgage home loans can offer, many of which are worth considering.

1. Not Solely Based On Credit Score Or Income, However Under The New Financial Assessment Rules You Do Need to Demonstrate a Capacity to Continue Paying Taxes And Insurance On The Home . One of the most advantageous benefits of a reverse mortgage is that they are not based upon your income or your credit score. The website bank rate, explains that these loans are solely based upon homeownership and existing, accrued equity in the home. In short, if you own your home and have paid down the balance while meeting the qualifying age of 62, you can generally get approved.

2. Numerous Payout Methods. There are several ways that you can get paid out the sum on your reverse mortgage.

These include:

  • A line of credit that you draw upon that can increase over time.
  • A monthly tenure option that pays you a monthly payment.
  • A monthly term that pays fixed monthly payments over a set term.
  • A fixed-rate, lump-sum option that pays you the entire proceeds at once.

3. Can Be Federally Insured According to the FHA, A reverse mortgage is only available through the FHA via a Home Equity Conversion Mortgage or HECM. The only way that you can get this type of an insured loan, though, is by going through an FHA approved lender.

4. Tax-Free Funds. You can borrow the funds from your reverse mortgage without having to pay any income tax, says the IRS. This is because these funds are considered a loan, not income, and are therefore not taxable. Make sure you consult with a financial advisor or accountant for any professional tax advice.5. No Repayment Required until: you do not have to pay back a reverse mortgage unless you sell or move from the home. If the home remains your primary residence, no payments are made until you and your spouse have passed away. (Shawna’s note: there are HUD rules in place regarding the repayment of a reverse mortgage, contact me for more information.)

6. Home Ownership Is Still Retained. The New York State Department of Financial Services advises that you retain the title of the home with a reverse mortgage. Just like with ALL mortgage types, the lender will place a mortgage on the title in the amount of the monies borrowed. So, just like ALL mortgage types, if you do end up moving or selling the home, that mortgage will have to be satisfied before any remaining monies are paid out. (Shawna’s note: the re-payment of a reverse mortgage in California is done exactly as with any loan, typically the home is put up for sale by the borrowers or their heirs, the buyer of the home takes out a new loan and the reverse mortgage is paid off as part of the normal sales escrow process).

5 Ways Reverse Mortgages Serve as a Retirement Tool

Senior studying paperwork

In today’s world, Americans face a looming retirement crisis — one that has been well-documented over the past several years and which has created a new purpose for the reverse mortgage.

Gone are the days when reverse mortgages were considered a loan of last resort. Now, the product is gaining steam among financial planners as a retirement tool that can hedge against future costs and provide much-needed income during borrowers’ post-career days.

By using a reverse mortgage to tap into home equity and fund retirement expenses, homeowners can effectively defend against the imminent retirement crisis, research shows.

“A lot of times people have not accumulated [savings] in a disciplined way, but at the same time the value of their homes has appreciated dramatically,” said Dennis Channer, principal at Cornerstone Investment Advisors. “A great deal of their wealth is tied up in that value. [Home equity] becomes another available resource in the long range forecast of being successful [in retirement].”

And that’s just what Wednesday’s webinar, “Standby Reverse Mortgages: A Portfolio Longevity Strategy,” was focused on teaching. Its purpose was to educate financial advisors on how a home equity conversion mortgage (HECM) could be used as a portfolio protection strategy.

“The ideas are endless on the different angles we can take on using the [reverse mortgage],” said Dr. John Salter, an associate professor of financial planning at Texas Tech University, who has educated financial planners on reverse mortgages for years. “There’s nothing wrong with the product.”

While the ways to use a reverse mortgage may be endless, Salter explained five strategies, in particular, for financial planners to keep in mind when clients are approaching retirement.

1. Use Reverse Mortgage Instead of HELOC

There are benefits borrowers can get from using a reverse mortgage that they can’t get from using a HELOC, Salter said. Among those benefits are line of credit growth, no monthly principle or interest payment, and the loan is not cancelable as long as requirements are met.

“If you’re looking for flexibility in repaying [the loan], you get that in a reverse mortgage; you don’t get that in a HELOC,” he added.

A HECM is also non-recourse, meaning the borrower or their estate will never owe more than the value of the home upon sale or death.

The only downside of a reverse mortgage is the age requirement, as there is no restriction on age when using a HELOC.

2. Refinance Existing Mortgage With a HECM

Use a HECM to refinance an existing mortgage, and either pay it off or not, Salter said.

In doing so, a borrower can eliminate their monthly mortgage payment.

3. Take Advantage of HECM For Purchase

While the HECM For Purchase (H4P) market has yet to take off, Salter said using a reverse mortgage to buy a new home can provide some flexibility for homeowners.

“It’s a way to purchase [a home] using the product up front,” he said.

RMF is one reverse mortgage lender that sees the potential for the product to drive future business growth, and is focusing on making people aware the H4P exists.

4. Defer Social Security Benefits With Income Support

Americans become eligible to draw from Social Security at age 62, but benefits can increase up to 32% if they wait until age 70 to start collecting. Some people, however, may not have enough money to bridge the eight-year gap. That’s where a reverse mortgage comes in, Salter says.

Using term payments from a reverse mortgage — getting equal monthly payments for a fixed period of time — can make up for the lack of Social Security benefits during that eight-year period so the borrower can maximize their retirement income.

5. Use Reverse Mortgage as Alternative to Longevity Insurance

Borrowers can initiate a line of credit today and convert that to a tenure payment — or equal monthly payments for life as long as the borrower remains in the home — at a later date.

Doing so gives the homeowner similar benefits that a deferred annuity would provide, while their asset control is never given up to an insurance company.

Ultimately, whatever strategy is used will allow older Americans to tap their home equity in a way that can provide extra income and more retirement security.

As the nation approaches the “retirement apocalypse,” reminding clients that their home is a resource can help financial advisors better plan for their future needs.

“Just letting people know that [their home equity is] a backstop or another resource that’s available to them [is important],” Channer said. “It’s cooled my concern about being able to work with clients and ensure their financial security; it’s taken some pressure off of that. And in clients’ minds, once they see that as a viable resource, it starts to take the pressure off of them.”

Article from Reverse Mortgage Daily, written by Emily Study, May 28, 2015
http://reversemortgagedaily.com/2015/05/28/5-ways-reverse-mortgages-can-serve-as-retirement-planning-tool/#more-24542