Experts: Home Equity and the Reverse Mortgage Can be the Key to Solving the Country’s Looming Retirement Crisis

And Yes, It Finally Did Snow in Grass Valley, Nevada City, Alta Sierra, Colfax and maybe a hint in Penn Valley. Now we all can’t wait for spring !

 

senior shoveling snow larger

As Baby Boomers continue to retire en masse without sufficient savings to support their later years, it’s become glaringly apparent that the country is on the brink of a retirement crisis.

Pensions have dwindled, Social Security is insufficient, health care costs are rising and people are living longer than ever before, carrying little resources with them into retirement. But many older Americans do have one major source of wealth at their disposal: their house. And for some, utilizing their home equity could be the answer to their late-in-life money problems.

That’s why some experts are insisting that reverse mortgages – which allow older homeowners to access their home equity and remain in their homes – are an important public policy that must be preserved for future generations.

Alicia Munnell, director of the Center for Retirement Research at Boston College, said tapping home equity is essential to solving the country’s retirement crisis. “It’s very clear that for most middle-income people, their house is their largest asset. In the past, they really haven’t touched this asset in retirement, but we are in an environment where Social Security is providing lower replacement rates, and 401(k) plans have modest balances, and the time will come when the only way people will be able to maintain their standard of living will be to tap their home equity.”

The Urban Institute’s Laurie Goodman agreed that reverse mortgages could help millions of Americans achieve a more comfortable retirement.

Goodman pointed out that nearly 37% f senior homeowners are worried about their finances retirement, while many of them are sitting on a mountain of housing wealth, more than $3 trillion. “Tapping into home equity is a possible solution to the financial strain facing some elderly homeowners,” Goodman said. “The bottom line is that there is enormous untapped housing wealth for this age group and a significant untapped market for the housing finance industry.”

Goodman pointed to an Urban Institute study that revealed there are 920,580 U.S. households headed by someone over 65 that have an annual income at or below $20,000 and a liquid net worth at or below $50,000, but they also at least $100,000 in home equity. “These folks should be looking at using their home equity to help them manage their finances,” Goodman said. “All together, these less than 1 million household have $208 billion in home equity they could be using.”

But they’re not.

Goodman said reverse mortgages have a number of impediments preventing them from mainstream use, including consumer misconceptions and the loan’s high cost and complexity.

But these issues aren’t the only problems. Goodman said there’s a collective reluctance among older homeowners to utilize home equity. “Even if all the structural impediments were removed, behavioral and attitudinal barriers would keep many senior homeowners from tapping their housing wealth,” she said.

Goodman said that even though reverse mortgages have not gained widespread acceptance, they could help both low- and high-income homeowners achieve a more financially secure retirement.

“For low-income retirees or those who are financially burdened but own substantial housing wealth, tapping home equity could obviate the need to cut spending on essentials, such as food, health and medicine,” she said. “High-income households could leverage equity to modify their homes to improve in-home safety and mobility.”

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If you’d like to explore options of using a Reverse Mortgage Loan for tapping into your home’s equity to pay for property taxes, maintenance, increase your retirement income by using a reverse mortgage credit line loan, or paying off an existing loan, whereby you then have no monthly mortgage payment requirement, give me a call to set up a no obligation, no pressure consultation in my conveniently located downtown Grass Valley Office: Shawna McDonald, Loan Officer, 10 Year Experienced Reverse Mortgage Specialist Sierra Foothills Reverse Mortgage Grass Valley l (530) 497-3010. http://www.SierraFoothillsReverse.com NMLS #271335 | CalDRE #00585530 Borba Investments Inc. CalDRE #01456165 Company NMLS #76801 These materials are not from, and were not approved by HUD or FHA   

Reprint from Jessica Guerin, reduced content for brevity https://www.housingwire.com/articles/48212-experts-say-home-equity-is-key-to-solving-the-countrys-looming-retirement-crisis

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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

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