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

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Reverse Mortgages & Long Term Care Insurance

beach What does this picture of the beach have to do with reverse mortgages and long term care? Nothing, but I have to get out of this heat and to a beach soon, just so you know…..

Ok, onward. I recently wrote an article for The Union, our general circulation newspaper here in Grass Valley, California exploring the topic of seniors’ potential long term care needs, long term care insurance, and reverse mortgages, written from the prospective of how my client expressed to me her thoughts on taking out a reverse mortgage credit line for her “maybe” future need of in home care vs. taking out a long term care insurance policy:

Recently a client reinforced the trend I’m seeing for clients’ to use a reverse mortgage credit line as not only a source of income as needed, a standby source of emergency funds, but also as an alternative to long term care insurance premiums.

It is estimated that approximately 70% of people turning 65 will need long-term care at some point in their lives. It is an uncertain expense, no life crystal ball. There are various methods to fund the cost: long term care insurance, Medicaid, self funding through savings, liquidation of personal assets, and/or a reverse mortgage credit line.

Genworth Financial, a long term care insurer, estimates approximately $45,750 annually for in home health aide, $80,300 annually for shared nursing home rooms, while assisted living costs vary dependent on the level of care.

Long term care insurance did not appeal to her: paying premiums for an insurance she was not sure she would ever need, coupled with the risk of rising premiums.

Medicaid would require her to liquidate nearly all her assets to qualify, wanting assets for heirs, she ruled out this option.

She owns her home outright, has retirement income and IRA assets, yet she decided to obtain a RM credit line loan as a standby in the event she needs in home care. The growth feature of the RM credit line was an added bonus: on amortization charts she was able to see how her reverse mortgage credit line borrowing ability grew over time. What was also appealing to her: she did not have to use her reverse mortgage credit line unless in home care was required, and if it was, then she controls the decisions and spending for care, thus eliminating having to negotiate with an insurer, and that she will only accrue an interest charge on funds actually borrowed.

Should she not need in home care, her untapped RM credit line will revert to inheritable equity for her heirs upon the home’s sale. As with all reverse mortgage loans she retains ownership and control of her home.

Shawna McDonald, Loan Officer, has successfully completed hundreds of reverse mortgages and is approved with 9 reverse mortgage lenders, ensuring clients receive low fees and great rates. 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 Associate. Copyright © 2016. Shawna McDonald NMLS #271335 CA-BRE # 00585530 DBA Sierra Foothills Reverse Mortgage, Borba Investments Inc, DBA MLS Reverse Mortgage Auburn, CA NMLS #76801 BRE #01456165 ~ Company MLS #76801

 

 

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).

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 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.

2014 NEW Reverse Mortgage Lending Limits, Younger Spouse Protection

South Yuba River Bridge SAVED! Full Funding for a Rebuild

South Yuba River Bridge
SAVED! Full Funding for a Rebuild

 

The long awaited lending tables from HUD for spouses who are younger than 62 years of age go into effect on August 4, 2014 for all new reverse mortgages. Spouses aged 18-61 on new loans will be included in the loan when the other spouse is 62 years of age or older and seeking a reverse mortgage. The loan amounts are more conservative the younger the spouse under 62 years of age is, however there no longer will be allowed a “non-borrowing” spouse situation where the younger spouse has typically not been on title, not been a party to the loan, and therefore not able to remain in the home if the older spouse passes away first unless: they inherited the home and can pay off the existing reverse mortgage with a conventional loan or cash, or are over 62 and have enough equity to take out a reverse mortgage on their own.

There will be certain requirements of the remaining spouse under 62 years of age when they become the sole surviving homeowner, such as continuing to keep paid property taxes and property insurance, as well as verifying periodically that the surviving spouse is indeed living in the home as his/her principle residence. The exact requirements to remain in the home once the older spouse as passed will be clearly spelled out in any loan application that issues after August 4, 2014 and all information on this new policy will be fully incorporated in the required HUD certified counseling session discussion and material.

HUD did not announce any changes for “non-borrowing” spouses on existing reverse mortgage loans, but it is an issue the industry continues to wrestle with. Any changes on this front I will immediately write about.

A surprise announcement that also issued along with this news is that HUD will make the lending tables we use to calculate loan proceeds MORE generous for older borrowers in their 70’s, and a bit LESS generous for younger borrowers in their 60’s.

If you are curious how this could affect you 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 CA-BRE 00585530 Borba Investments, Auburn, CA NMLS #76801 HUD approved