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

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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.

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

Things to Consider About Aging In Place

Seniors in home remodeling

Retrofit my Existing Home or Move?

Reprint from Article Written for The Union Grass Valley Newspaper on April 28, 2015

A recent survey by Genworth Financial, a long term care insurer, noted that while overall long term care costs continue to rise, paying for care services in home is still the cheapest option*. Being close allies here in Grass Valley with local and may I say, beautiful assisted living communities, aging in place in one’s home is not for everyone, the thought of having meals prepared by gourmet chefs and lots of activities to choose from is enticing indeed. However, some of my clients complete a reverse mortgage credit line to tap into their home equity for funds to retrofit their homes for the next stage of life’s journey.

What is the typical cost of a retrofit? The MetLife Report on Aging in Place 2.0** recently reported the cost for design and structural modifications for a one story home will cost an average of $9,000 to $12,000.

What are smaller projects to consider? Replacement hardware, sturdy handrails, grab bars, single handled faucets, higher sitting toilets, rollout shelving in kitchens, and lighting in hard to see spots are all relatively easy and cost conservative.

If I funds are available, larger projects for electric scooter or wheelchair access; widening doorways, corridors, and ramps are bigger picture retrofits.

In home health costs are reportedly rising at a slower pace than facility-based care. According to the Genworth study, in-home health aide costs rose approximately 1.27% over a one year period compared to assisted living and semi-private nursing home care rising an average of 2.86% and 3.77% respectively.

Seniors in home with in home care provider

There’s no pre-determined correct path in this next stage in a senior’s life, it’s all about hopefully having the financial ability to exercise a conscious choice. In addition to a reverse mortgage credit line being used to retrofit a senior’s existing home, a reverse mortgage can fund assisted living/dementia care for one owner on title, as long the other owner on title to the home remains in the home as their principle residence. Also, an existing home can be sold to buy, via reverse mortgage for purchase, an already senior retrofit home.

One of my clients commented recently that they felt I conducted my business more like a consultant, not only a loan officer: someone who would listen to concerns and offer options, this after we spent time going over their future living and financial considerations; preparing for big picture changes for them as they entered their mid-70’s. Aging is not for the faint of heart, we all are moving forward in the journey of maturing and entering into new life stages. If you’d like to sort through some of your options with me, call for a personal appointment or attend one of my monthly Reverse Mortgage Workshops held in my local Grass Valley Office, lunch is catered and the last comment from several of the April workshop group: ” Shawna, that was fun!”

A closing thought: the recent HUD reverse mortgage program change requiring me to do a borrower financial assessment at the time of loan application is no reason to allow any lender to panic or pressure you, give me a call, I’ve got you covered for explaining this change!

Shawna McDonald has successfully completed hundreds of reverse mortgages and is approved with 8 reverse mortgage lenders. Her 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. All Rights Reserved, duplication and distribution prohibited. Shawna McDonald NMLS #271335 CA-BRE # 00585530 DBA Sierra Foothills Reverse Mortgage and Borba Investments Inc, DBA MLS Reverse Mortgage Auburn, CA NMLS #76801 BRE #01456165 ~ HUD approved lender. * 2015 Genworth Financial annual Cost of Care Survey     ** MetLife Report on Aging in Place 2.0, 2013

The Reverse Mortgage Credit Line: Growth Feature, Government Guaranteed & No Monthly Payments

Seniors on a Cruise

Seniors Look to the Reverse Mortgage for all Sorts of Purposes  Including Travel

This is a reprint from an article I wrote for the Grass Valley Union Newspaper

A trend I see in my local Grass Valley Reverse Mortgage office: seniors establishing a reverse mortgage credit line not because they “need to”, but on standby as part of their overall retirement financial picture for the peace of mind it gives and maybe just a wee bit of extra travel. Financial planners in increasing numbers are suggesting the reverse mortgage as part of client retirement plans and an excellent way to stop 401 draws, beyond the required, as a way to allow retirement accounts to grow again during this time period of a stock market rebound. A common question I’m asked: “does the RM credit line work like a regular credit line?” It does, and it doesn’t.

A RM credit line allows a borrower to access funds for any purpose, as does a conventional credit line. They are also similar in that borrowers continue to own the home and borrowers are required to keep property taxes, maintenance and insurance current. However, unlike a conventional line of credit, there is no monthly repayment, it is insured by the government, and the dollar amount a senior is eligible for is guaranteed for life, it may never be reduced or the account closed at a bank’s discretion, which unfortunately is a trait of conventional credit lines.

 A RM credit line has another aspect: the “credit line growth feature”. That is to say: the dollar amount that may be borrowed grows larger over time as the borrower ages. When I teach my monthly workshops here in Grass Valley we go in-depth on this feature. In short for this article: the RM program guarantees continual growth on the unused portion of the credit line at the current interest rate on the reverse loan plus 1.25%. The reverse mortgage itself, as well as this credit line growth feature, was the brain child of President Ronald Regan and his financial advisors.

 Let’s look at the numbers in action!

“Betty” is 72 years old, $475,000 home appraisal, and per the HUD formula her credit line eligibility is approximately $273,000. The current interest rate that will accrue on spent funds is 3.4% plus 1.25% for the ongoing FHA mortgage insurance premium, for a total of 4.65% approximately. Her growth rate on funds she has not spent will also be 4.65%. (The combined rate on spent funds will always equal the rate of growth on funds reserved in the unspent credit line.)

Betty initially borrows $42,000 to pay off her first loan, interest rate of 6%, a credit card, interest rate19%, a car loan, 8% and rolled in initial loan costs . Her remaining credit line is approximately $225,000. She has swapped out higher interest rates on these accounts for the 4.65% total RM rate and will no longer have monthly payments on them.

OK ~ DRUM ROLL: In this scenario how much will her credit line borrowing ability have grown in 5 years? It will have grown from $225,000 to $282,000 approximately. In 10 years? Her borrowing ability will have grown to $355,000 approximately. (Spending out of the credit line is of course allowed, this example is a simplified one.)

The RM credit line allows seniors the financial ability to “age in place”: keep their home, privacy, and sense of control. The reverse mortgage may also be used to fund secure living in a dementia community for one homeowner/borrower as long as the other homeowner/borrower keeps the home as their principle residence. It’s a good idea to get the credit line in place while all borrowers are competent and able to fully understand the program.

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

Why not call to reserve a place in my next complimentary reverse mortgage workshop? Given monthly, these workshops are a fun way to learn about reverses in a relaxed atmosphere, with a complimentary catered meal. In addition, you’ll leave the workshop with a comprehensive packet of information including a dvd. Typical feedback from participants is that they leave feeling more confident that they have the facts about reverse mortgages and were able to get their questions answered one on one with a skilled specialist ~ licensed loan officer.

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