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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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.

The Affluent Turn to Reverse Mortgages to Slow Down 401K Draws & The Myth Debunked, Again

cruise-woman_3170504b

A fascinating article by the Wall Street Journal chronicles a trend that I too am seeing in my office: folks who own an expensive home free and clear, or have a small loan outstanding, coming in and establishing a reverse mortgage credit line to fund the upkeep of their home, their other monthly bills, and for travel. A couple of my clients just returned from cruises and have never felt more contentment in retirement as they do now, POST set up of a reverse mortgage credit line.

One comment universally expressed by all clients particularly caught my attention, and paraphrase: “We had to leave our beautiful home every day while we were working; now that we are retired we don’t want to move and down size, we want to fully enjoy our home, and yet, we want to do a little travel”

One goal also universally expressed by all: once the RM loan was complete, they were ceasing draws on their 401K’s beyond the required, all clients had monthly incomes, however it wasn’t quite enough for a comfortable lifestyle, thus they had been turning to draws on retirement funds.

Could they have continued to do so? Yes, however, by keeping future 401K draws to a minimum while the stock market is doing well, they would be allowing their 401K’s time to rebuild from the economic downturn. Increasing numbers of financial planners are recommending this RM credit line strategy as part of a 401k rebuilding plan.

Unfortunately I continue to need to debunk “the myth”. One of my clients reported back to me they were told, and I paraphrase, “You have now given the house to the lender”. This statement is incorrect: With any type of RM loan, the borrower(s) remain the owner(s) on title, thus the house is titled just like it would be with any other type of loan. And, just like any other type of loan, at the time the house is sold, by the borrower(s), or their heir(s), the RM loan is paid off and all remaining equity goes to the borrower(s) or their heir(s). As with any loan type, if home equity preservation is a goal, then borrowing modestly is advised.

Have questions? Call to schedule a private consultation or reserve a spot for my next monthly workshop: Thursday April 16th, 2015. Shawna McDonald Loan Officer, has successfully completed hundreds of reverse mortgages and is approved with 8 reverse mortgage lenders, ensuring clients receive low fees and great rates. (530) 497-3010. Her local office: Sierra Foothills Reverse Mortgage 412 E. Main Street Suite N, Grass Valley.                                                         The website is www.SierraFoothillsReverse.com.

The WSJ article referenced herein: “When Even Wealthy Homeowners Are Using Reverse Mortgages, The Question is: Why Aren’t You?” published on October 9, 2014.

The opinions expressed here are those of Shawna McDonald Copyright © 2015.     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.