New Thinking About Reverse Mortgages ~ Younger retirees may benefit from using a reverse-mortgage line of credit as interest rates rise ~

seniors hiking    Rising interest rates could make reverse-mortgage lines of credit more appealing to younger retirees.

A reverse mortgage is a type of loan taken against equity in a home, available to borrowers who are at least 62. It requires no monthly payments, with interest charges instead added to the loan balance and paid only after the homeowner sells or dies. The loan can be taken as a lump sum or as monthly income, or as a line of credit, with no interest charges on unused amounts.

Many homeowners wait until well beyond 62 to take a reverse mortgage, because generally the older the borrower is the more he or she will be qualified to borrow.

In recent years, though, more financial advisers have warmed up to the idea of homeowners taking a reverse-mortgage line of credit when they are as young as 62, as a way to boost their nest egg. The key to this strategy is that the credit line grows over time, by amounts tied to the course of interest rates, and the unused portion can be converted to a substantial monthly income years later. And today, with inflation and interest rates widely expected to rise, these credit lines could be particularly valuable.

“Now is an exceptionally good time to be considering adding a [reverse-mortgage] credit line to the retirement blueprint,” says Shelley Giordano, chair of the Funding Longevity Task Force at the American College of Financial Services. Interest rates are low, which increases the credit limit on reverse mortgages, she notes, and if rates rise over the life of the loan, that will add to the growth of the credit line. Since interest rates tend to rise alongside inflation, the growing line of credit would provide an inflation hedge, she says.

Running the numbers

“Research has shown that setting up a line of credit as soon as possible, age 62, in order to let it grow and only tapping into the line of credit when needed can substantially improve the long-term sustainability of a retirement-income portfolio, meaning you can make your money last longer,” says Jamie Hopkins, associate professor of taxation at the American College of Financial Services.

The strategy—called a standby reverse mortgage, or SRM, by some—has been pushed in financial journals by a number of academics, starting with a 2012 paper by Barry H. Sacks, a tax attorney in San Francisco, and his brother Stephen R. Sacks, a professor emeritus of economics at the University of Connecticut. They recommend drawing from the credit line when investments like stocks and bonds are down, so the homeowner enjoys a steady income and gives other investments time to recover, allowing them to last longer.

They said the strategy was successful in 1,000 Monte Carlo simulations, which run calculations over and over while varying key factors like interest rates and investment returns. Not only did it improve the borrower’s chances of enjoying steady income to an advanced age, it could also produce a larger income along the way, they reported.

Not for everyone

The chief downside: Sums taken through any reverse mortgage, including any amount actually borrowed through a line of credit, reduce the equity available for other purposes—like moving to another home or buying into an assisted-care facility—or for the homeowner’s heirs.

“It may not be best for a short-term play” because of the time it will take for the growth of the credit line to offset the cost, “or if one wishes to leave a home free and clear [of debt] to their heirs,” says Steven Klein, reverse-mortgage director with AmCap Mortgage, in Greenville, S.C.

But over many years, the credit line can grow to be quite large, especially if interest rates rise. Here’s how it works: These credit lines carry adjustable interest rates that typically reset every month or every year. Once the initial credit limit is set—based on interest rates, the homeowner’s age, the home’s value and its location—it grows each year by the current interest rate on the loan plus 1.25 percentage points, which is the loan’s annual mortgage-insurance charge.

For example,  a 62-year-old borrower with a $400,000 home in the Philadelphia suburbs a credit line starting at $200,668, at an initial rate of 5.70%—a 4.45% interest rate on the loan plus the 1.25% insurance charge. If the interest rate doesn’t change, the credit line will grow 5.70% a year, reaching more than $600,000 in 20 years. It could then be converted to a monthly income of nearly $5,000—less if any of the credit has been used—based on standard industry formulas. If interest rates go higher, the credit line would be larger; if they fall, it wouldn’t grow as much.

Taking a credit line at an early age could also mitigate the danger of the home’s value falling, a decline that would reduce the amount of credit available through a reverse mortgage taken later. And the credit line grows regardless of changes in the home’s value. If the home’s value soars, the homeowner could scrap the old credit line and take out a new, larger one against the higher value.

“A reverse-mortgage line of credit can be a saving grace for the baby boomers who simply do not have enough retirement savings” if home equity is ignored, Prof. Hopkins says. “If home equity is incorporated more strategically in the future, we will see vast improvements in the financial security of retirees.”

This is a reprint of an article written by Jeff Brown in February of 2017.

https://www.wsj.com/articles/new-thinking-about-reverse-mortgages-148695516

LEARN ABOUT REVERSE MORTGAGES IN THE COMFORT OF MY GRASS VALLEY OFFICE…WE CAN ALSO EXPLORE WHAT YOUR APPROXIMATE QUALIFICATION NUMBERS ARE ALL ABOUT, CALL 530-497-3010 FOR A PERSONAL APPOINTMENT.

~Shawna

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2017 Reverse Mortgage News and Trends

seniors-holiday-new-year

Happy Holidays and the new year of 2017 is right around the corner.  Here are a few things to summarize about 2016 and look forward to in 2017 within the reverse mortgage world:

 
It’s been an active year for revere mortgages, in addition the government insured RM program reached a milestone: In 2016 1 million reverse mortgage loans completed since the program’s inception in the late 1980’s.

 
Changes and trends for 2017:  Financial planners in greater numbers are looking with favor upon the RM for clients to set up a credit line safety net rather than dip into investments for extra living expenses or they are recommending clients utilize the RM to pay off an existing mortgage. In paying off an existing mortgage the client becomes monthly mortgage payment free increasing monthly household liquidity, thus advances from investments to sustain living expenses may be either reduced or halted altogether. (Borrowers must continue to pay and keep current property taxes and homeowners insurance, as well as HOA dues if applicable.) No changes are anticipated in this fundamental tenant of the program: the borrower(s) remain on title as the owner(s) of the property when they do a RM loan.

 

The home price maximum recognized has been increased for 2017 from the current $625,500 to $636,100:  This does not mean that homeowners with homes valued above this amount cannot utilize the program; for example: a home valued at a million dollars would be limited to borrowing only as much as the $636,100 limit allows.
A new Harvard University report entitled “Projections & Implications for Housing a Growing Population, Older Households 2015-2035” issued putting forth that a RM can be a financially realistic option to help older homeowners alleviate cost burdens and comfortably age in place.**

The Financial Assessment process of a RM application became more streamlined this year: standardization of proof of income to demonstrate continued ability to pay ability ongoing mandatory obligations such as a car payment property taxes, and homeowners insurance, and HOA dues if applicable has made the process uniform. The good news: the income requirements are NOT as stringent as with a conventional loan.
Long term care insurance: Seniors without long term care insurance are looking towards the RM credit line as a source of funds for future in-home care or home modifications for aging in place: ramps, handrails, or step in showers are a few examples.

Long term care insurance:  Seniors without long term care insurance are looking towards the RM credit line more commonly as a source of funds for future in-home care or home modifications for aging in place: ramps, handrails, or step in showers are a few examples.
**http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/harvard_jchs_housing_growing_population_2016.pdf

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.

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

Brand New Reverse Mortgage Loan Type, the HYBRID Reverse Mortgage is Here ~ We Have It!

 

NGS Picture ID:1168078       www.SierraFoothillsReverse.com

 

 

 

 

 

First New Reverse Mortgage Product in 5 years Introduced  For a long time we industry specialists have been asking for this product: the Hybrid Reverse Mortgage. Before getting into the details of this new HUD approved and FHA insured reverse mortgage product, let’s remember existing products: the fixed rate reverse mortgage, typically used to pay off an existing mortgage and the adjustable rate, typically used to establish a reverse mortgage credit line.

A concern expressed by some clients, regarding the current reverse mortgage credit line product, depending on their age, is that while the interest rate on what is spent is currently in the 2% start range, the rate could increase over the life of the loan to the cap of 10 % over the start rate. The interest rate adjusts up/down monthly and is tied to a stable index, the Libor. Over the last 15 years the Libor index has gone to a high of approximately 9% and hovered in the 3-7% range predominately.

Reverse mortgage borrowers NEVER accrue interest charges on their unspent credit line funds, and they are NOT making monthly payments on money they have spent, thus there is no possibility of a fluctuating house payment, however, interest is accruing on spent funds, and the higher the rate, the higher the loan balance will be at the time of home sale. Some of my clients are unconcerned about rate fluctuations: there are no heirs who are waiting to inherit house equity; some clients are less concerned because they are already in their 80’s, and some younger clients express concern.

The introduction of the new and already popular “Hybrid” reverse mortgage credit line addresses the rate concerns. The KEY feature of this product: the interest rate on spent funds can NEVER rise more than 5% over the start rate during the entire life of the loan. Thus, with the current start interest rates in the 2% range, the rate on what has been spent from the reverse mortgage credit line will never go above the 7% range. The starting loan rate is expressed in your loan application and locked during the loan process. As space is limited here, for any questions please feel free to give me a call.

Shawna McDonald, Loan Officer has completed hundreds of reverse mortgages. She is approved with 8 of the largest reverse mortgage lenders in the nation allowing the consumer 1 stop fee shopping. Her local office, Sierra Foothills Reverse Mortgage, is located at 412 E. Main Street Suite N, Grass Valley, (530) 497-3010. The website is www.SierraFoothillsReverse.com.

 

NMLS #271335 BRE 00585530 Borba Investments, Auburn, CA NMLS #76801 HUD approved