Reverse Mortgage Line of Credit or Conventional Line of Credit?

Seniors gardening

From Shawna McDonald at Sierra Foothills Reverse Mortgage, located in downtown Grass Valley:  “Hello and Happy Spring to Seniors in Grass Valley, Penn Valley, Nevada City and surrounding areas. “

Spring is finally here and I wanted to share on my blog an article I recently wrote for our local newspaper The Union:

Reverse Mortgage Line of Credit or Conventional Line of Credit?

Two sets of clients consulted me with identical decisions: having retired, they sold large homes, paid all cash for smaller homes and modest remainder funds went to savings. Year one on retirement income went ok, however modest remainder savings for emergencies and little extras proved insufficient, sleepless nights ensued: “What if the roof and car went out?” Their question: Should we do a reverse mortgage credit line loan or a conventional credit line loan, aka a “HELOC”?

Having met with me, a reverse mortgage loan specialist and then independently with a conventional banker, both couples came to the same conclusions; a reverse mortgage credit line was the best option for them. Why? Unlike a RM credit line loan, a “HELOC”, requires monthly payments, is for a fixed period of time, and may require a future reset to a higher monthly payment. Both couples planned to use the proceeds of the HELOC to pay the monthly HELOC payment, therefore, realizing that when the HELOC credit line ran out, they would be forced to sell their homes if they weren’t qualified to refinance and take out more money to keep up with the payments. This risk potential was causing considerable distress, they wanted to age in place in their homes. Additionally, if one or the other passed, due to a then diminished household income and little life insurance in place; the remaining spouse would be required to go through the upheaval of selling the home because of an inability to make the monthly HELOC payment.

A HELOC typically has features which alarm me if used as a financial tool for seniors: A HELOC lender may reduce available HELOC funds or freeze the funds under certain conditions. This is NOT allowed with a RM credit line loan, RM loans are government supervised, insured by FHA and cannot be reduced, altered, or frozen; however, a RM loan does have a higher cost than a HELOC for these safety/insurance guarantees. As with any loan type, keeping current on property taxes and insurance is required.

The RM credit line loan will be titled like any loan, the borrowers remain owners of the home, the lender does NOT own the home, (a common RM myth). Regardless of the remaining amount in the RM credit line, both borrowers or the remainder borrower, if one predeceases the other, may stay in the home for their lifetime(s), sell and keep the remaining equity, or bequeath remaining equity to heirs, as they choose.

Shawna McDonald, Loan Officer, for 10 years has dedicated herself to specializing in reverse mortgage loans, she has successfully completed hundreds of them. Call Shawna to discuss your retirement goals: by private appointment or call for her next seminar date. Sierra Foothills Reverse Mortgage 412 E. Main Street Grass Valley (530) 497-3010. NMLS #271335 | CalBRE #00585530 Borba Investments Inc. Company NMLS #76801 |Company BRE # 01446165 These materials are not from, and were not approved by HUD or FHA

 

 

Advertisements

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

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).

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.