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Tag Archives: Aging In Place

Financial Times: Reverse Mortgages Can Be Lifesavers


March 5th, 2014  |  by Jason Oliva Published in News, Retirement, Reverse Mortgage

The financial planning community is warming up to reverse mortgages, with some advisors finding them to be “lifesavers” for some clients in tight circumstances, a Financial Times article suggests.

As reverse mortgages overcome historically negative perceptions with the help of recent program changes and new consumer protections, Home Equity Conversion Mortgages (HECMs) have also begun to gain more recognition from financial advisors in mainstream retirement planning.

Dana Anspach of Scottsdale, Arizona-based Sensible Money told Financial Times she recently recommended a reverse mortgage to a widow in her 80s whose home was paid off and was supplementing her Social Security with a home equity line of credit.

“Anspach used a reverse mortgage to pay off the HELOC, wiping out $400 a month in interest payments and providing additional monthly income of $200,” the article notes.

Other advisors are recognizing that the tax-free proceeds from reverse mortgages can allow clients to postpone Social Security usage as part of a “post-retirement tax saving strategy,” which can keep clients from withdrawing too much from IRA or 401(k) accounts.

“The bottom line is that reverse mortgages are not longer only for retirees in dire straits. Advisors ‘should be looking at every aspect of income, including home equity,’” said CEO of Blue Ocean Global Wealth Marguerita Cheng in the article.

Read the Financial Times article

Written by Jason Oliva

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Reverse Mortgages Can Benefit Retirees, Both Wealthy and Not

Move Can Help Retirees Keep Investments Until Right Time to Sell

By Kelly Greene, WSJ
Jan 16, 2014 4:29 p.m. ET

Home = Cash 2Reverse mortgages aren’t just for people struggling to keep their homes anymore.

The loans also can work for well-heeled retirees looking for a buffer to keep them from selling investments at the wrong time, according to academic researchers. And Congress last month gave a boost to the type of reverse mortgage that works best for that purpose.

Reverse mortgages let homeowners who are at least 62 years old borrow against their home equity. The loans don’t have to be used for a specific purpose, but typically are used for home modifications, repairs, medical expenses or home care that elderly people might not otherwise be able to afford.

The loan is due, with interest, when homeowners move out, sell the home, die or fail to pay property taxes or homeowner’s insurance premiums. The homeowner’s heirs typically sell the house, pay the balance and keep whatever is left. At least 595,000 households have an outstanding reverse-mortgage loan, according to the National Reverse Mortgage Lenders Association, a Washington industry group.

In the past, many financial planners recommended reverse mortgages for their clients only as a last resort because fees were relatively high—as much as 5% of the loan amount. That changed a few years ago, when a new product was developed by the industry and insured by the Federal Housing Administration called the HECM Saver, which typically has lower upfront borrowing costs than earlier types of reverse mortgages. (HECM stands for “home equity conversion mortgage.”)

With lower borrowing costs, some planners are finding new ways to use reverse mortgages to avoid selling depressed investments or to lower tax bills. “Retirement is really about cash flow,” says Martin James, a certified public accountant in Mooresville, Ind. “Even for a person who’s got their mortgage paid off, it’s nice to have a line of credit sitting there.”

Earlier this year, the HECM program was eyed by federal lawmakers as a financial risk to the FHA, and lawmakers considered curtailing the program. The bill, passed by Congress and signed by President Barack Obama, is intended to give the Department of Housing and Urban Development the leeway to make changes to keep the program going, probably after Oct. 1, says Peter Bell, chief executive of the lenders’ group.

Getting a reverse mortgage takes some due diligence on the part of homeowners and their families. Big-name banks largely quit the business in the aftermath of the financial crisis, leaving smaller companies and independent brokers to make the loans. Some financial advisers have been accused by regulators of encouraging elderly homeowners to put their reverse-mortgage proceeds into questionable investments, such as annuities with steep penalties for cashing in.

The Consumer Financial Protection Bureau said last year that it would coordinate with other regulators to root out reverse-mortgage scams, monitor the market closely for deceptive and abusive practices and consider further measures. Interested in tapping your home as a security blanket?A few things to consider:

 Your house could be a reliable credit line. If your home-equity line of credit gets canceled, a reverse mortgage might be a good substitute.

Three certified financial planners at Texas Tech University in Lubbock and Edinboro University of Pennsylvania published a paper last year in the Journal of Financial Planning that recommends using a reverse-mortgage line of credit to meet retirement-income needs during a big market drop, rather than selling investments. “A few years ago, we were starting to get calls from clients saying, ‘Hey, my line of credit’s been canceled.’ They have plenty of resources, but that was an emergency pot of money,” says John Salter, the paper’s lead author. “It doesn’t do you much good if the bank’s going to pull it before you need it.”

The researchers used what they called a “standby” reverse-mortgage strategy, meaning the reverse-mortgage line of credit served as a source of readily available cash when retirees’ portfolio values dropped below the level where they could meet their goals.

Using a portfolio worth $500,000 and a home value of $250,000, among other assumptions, the researchers found that using a reverse mortgage’s line of credit significantly improved the chances the portfolio would last through the retiree’s lifetime, because it reduced the risk of having to sell investments when they had fallen in value.

Tapping home equity could lower tax bills. Some retirees pay off their mortgages with taxable withdrawals from their 401(k) or other accounts. Yet they might be able to lower their income taxes by using reverse mortgages to pay off their traditional mortgages, Mr. James says, if they have substantial equity. That means they wouldn’t need to withdraw as much tax-deferred retirement savings, which are subject to income tax and can bump retirees into higher tax brackets.

Plus, without investment distributions needed to make mortgage payments, they might be able to keep their overall incomes under the income threshold at which Social Security retirement benefits are taxed, Mr. James says.

He also is looking at using reverse mortgages as a “bridge” to Social Security, allowing retirees to delay taking Social Security and increase the size of their monthly payments—and those of a surviving spouse—down the road.

Consult an expert. Before you start talking to lenders, consider getting advice from a reverse-mortgage counselor certified by HUD to learn more about the options and mechanics. The National Council on Aging and other nonprofit groups sometimes offer such counseling, often at reduced rates.

There is a directory of reverse-mortgage counselors at hud.gov. Click on “Talk to a Housing Counselor” and then “Search online for a housing counseling agency near you.”

Keep the kids in the loop. When Mr. James broaches the idea of a reverse mortgage with clients, “the first thing they do is wrinkle their nose,” he says. One big reason: Many parents want to leave their home, often their biggest asset, to their children as their inheritance.

Mr. Salter acknowledges that leveraging the family home can be “a touchy subject.”

Still, he contends that many adult children “don’t really want the house” and that they are eager for their parents to use their assets to have “a better rest of their life.”

Besides, Mr. James says, “you still have costs associated with selling the house. You may not get as much as you think you’re going to.”

“Using a reverse mortgage allows for a little more diversification,” meaning retirees could leave other investments with potential for better returns to their families, Mr. James says.

“My first answer, when people ask how to approach the kids, is to ask them if they have an extra room in their house for their parents,” Mr. Salter says.

 

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“RightSize” New Home with a Reverse Mortgage?

bigstock-Sold-Home-For-Sale-Sign-Home-1893969According to recent National Association of Realtors figures, last year over 26% of homes were sold to homebuyers over the age of 50. And as the peak bulge of the boomer generation approaches retirement, the number of older homebuyers is expected to rise dramatically until it makes up the largest homebuyer cohort in American history.

But not everyone heading into retirement is certain they want to move, and a question I am commonly asked is, “Should we refinance the home we’re in, or buy something with less upkeep?”

Obviously I don’t know – but I have accumulated quite a body of knowledge regarding what retiring boomers take into consideration. Following is a starting point for things to consider:

1.     Is your existing home safe for the long-term, including layout and accessibility to bedrooms, bathrooms, kitchen and laundry?
2.     Is the home the right configuration? How about size?
3.     Is the amount of yard and household maintenance appropriate?
4.     Is the location still right, meaning are you close to family and friends?
5.     Have traffic patterns gotten dangerous?
6.     Are you close to doctors, shopping, amenities, recreation, and your house of worship?
7.     Do you still know your neighbors?
8.     Will this still be the right house in 10 years? How about in 15?

If you answer a significant number of these “no,” moving might be a logical consideration. However, anyone who recently has applied for a home loan knows lending laws and regulations have become akin to major surgery. And for those looking to retire soon, or who have already retired, securing a loan can be very difficult.

However, FHA’s seniors’-only HECM for Purchase was specifically designed with the retired – or soon to be retired – buyer in mind. While there are qualifications that must be met, they are not as stringent as those governing “forward” lending.

A highly beneficial feature of HECM for Purchase is that you can buy your new home before you have sold your exit home. Not only does this get you into your new home in a timely fashion, but you now have time to market your exit home and wait for the next peak sales season to roll around before selling.

But perhaps best of all, rather than tying up a significant amount of your financial resources in the new house by doing an all-cash purchase, you bring to the table only a percentage of the purchase price, which allows you to keep liquid more of your savings, or more cash from the sale of your exit home.

 

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INFORMATION FOR ADULT CHILDREN OF AGING PARENTS

Following is some helpful information when you are considering an FHA HECM for your parents:

House-safe• More Americans fear running out of money in retirement than fear death. With increasing life expectancy, it is easy to understand this fear. Increasingly, long-term retirement planning includes a reverse mortgage as a means to increase cash flow and address income shortfalls in retirement. Nearly one quarter of homeowners say long-term financial planning was their reason for originating their HECM.

• Nearly half of homeowners considering a reverse mortgage are under age 70.

• About two-thirds of HECM borrowers want to extinguish monthly mortgage payments to make more money available for daily needs. Another way of saying this is that most homeowners have a traditional mortgage – which is paid in full when they close on their reverse mortgage.

• The percentage of workers aged 55 or older who are still employed is up to 40%. However, staying in the workforce can become increasingly difficult as people get older.  Proceeds from the HECM may provide provide tax-free funds and may allow older homeowners to retire

 

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Navigating the Retirement Labyrinth

misconRetirement planning can be confusing. Here are some major milestones on the retirement timeline:

Age 55. If you leave your job after age 55, you can begin taking penalty-free 401(k) withdrawals. Withdrawals from traditional 401(k)s will be taxed as income.

Age 59 ½. IRA withdrawals are allowed without penalty and are taxed as income.

Age 62. Social Security eligibility begins, but your checks will be reduced 25 to 35 percent if you begin claiming at this age. If you are under full retirement age and you work and earn above the annual earnings limit of $15,120 in 2013, excess earnings are deducted from your benefits.  If you plan to continue to work, benefits are also reduced by 50 cents for each dollar you earn above $15,120 in 2013.

Age 65. Medicare eligibility kicks in. Beneficiaries may sign up for Medicare Part B during a 7 month window around their 65th birthday, beginning 3 months before the month you turn 65 and ending three months after. It’s a good idea to sign up right away because your Medicare Part B monthly premium increases 10 percent for each 12-month period you were eligible for Medicare Part B, but did not enroll. If you or a spouse are still employed and covered by a group health plan after age 65, you have 8 months to sign up after you leave the job before the penalty kicks in.

Age 66. Baby boomers born between 1943 and 1954 are eligible to receive full Social Security retirement benefits at age 66. For boomers born between 1955 and 1959 the full retirement age gradually increases from age 66 and 2 months to 66 and 10 months. The month you reach your full retirement age, your benefit checks are no longer reduced if you continue to earn income from work.

Age 67. For those born in 1960 and later, the age you can receive full Social Security retirement benefits is 67.

Age 70. Your Social Security benefits further increase by 7 to 8 percent each year you delay claiming up until age 70. After age 70 there is no additional incentive to put off collecting.

Age 70 ½. Those aged 70½ or older must take annual required minimum distributions from retirement accounts. The proceeds will be taxed as income. Seniors who fail to withdraw the correct amount must pay a 50 percent tax penalty and income tax on the amount that should have been withdrawn.

Contact your financial planner to discuss your specific situation.

 
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Posted by on October 9, 2013 in Retirement, Seniors

 

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Elder Wisdom: What A Tale Their Thoughts Could Tell

Amara Rose October 8, 2013 1

Gordon Lightfoot (whose signature lyrics from If You Could Read My Mind are reflected in the post title) turns 75 this November, and Bob Dylan has said that when he listens to a Lightfoot song, he “wishes it would never end.” That’s pretty high praise from a fellow septuagenarian maestro. Perhaps this is because seasoned songwriters instinctively weave life’s essence and lessons into a succinct truth that resonates to the marrow with those who listen, and thus appereverse mortgage newsals across the decades to both original fans as they age, and to a new audience.

The same might be said of elders. There’s so much wisdom to be gleaned from older team members. Consider this recent ad on CraigsList.com, headlined, “Looking for a 72-year-old writer”:

“I’m looking for a few good writers between the ages of 70 and 74. Seeking contributions from geographical locations all over the United States from persons who were in high school during 1959. For details about my project please go to http://www.classof59.net. It is okay if someone younger writes a contribution that was obtained orally from a member of the high school class of 1959.”

What a lovely tribute to what has been labeled, “The Silent Generation.”

“It is not how old you are, but how you are old,” said Academy Award-winning actress Marie Dressler. We’re moving from a model that focuses on disease, disability and death to one of “passion, purpose, and participation,” which happens to be the tagline of COPA (Collaborative on Positive Aging), a new volunteer division of the Council on Aging in one California community.

At the initial COPA gathering, much of the guiding wisdom for how future meetings might be organized was provided by people in their 70s and 80s, such as: “To remain vital, we need a mix of social/learning/leisure/contribution.” How perfect a reminder to anyone who serves seniors — reverse mortgage professionals obviously included — that as people age they become not a group apart, but more of who they’ve been, with a blend of needs and desires to enrich and fulfill these later years.

Consider the Sun City Poms, Arizona cheerleaders whose minimum age requirement is 55, along with the requisite “dance skills of rhythm, agility, poise, energy, and showmanship for performing. Acrobatics and baton twirling are a plus.” Wow! These women are weaving their social, leisure, learning and contributing into a bountiful blessing for everyone.

In his brilliant essay on conscious aging, Rabon Delmore Saip, a presenter at the COPA meeting, quotes developmental psychologist Paul Baltes: “One of the great challenges of the 21st century will be to complete the architecture of the human life course.”

The seniors reverse mortgage professionals serve today are playing a vital role in constructing the future of humanity, as they (and we) reinvent what it means, and what it “looks like”, to be “old”.

 
 

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A great reverse mortgage idea: Take a credit line now

Money in home 1August 22nd, 2013  |  by Elizabeth Ecker Published in Reverse Mortgage

I’ve got a financial proposal that is probably going to surprise you. Take out a reverse mortgage at age 62, even though you don’t need the money. In fact, take it especially if you don’t need the money. There will never be a better time. Terms will change in October, but the light is still green for people who want to use the strategy described here.

Reverse mortgages are called Home Equity Conversion Loans (HECMs). They’re designed to provide you with cash at a later age, to help pay your bills if your other savings run out. Normally, the smart play is to wait until your mid-70s or early 80s to take the loan. For some readers, this remains the right choice, as I’ll explain below.

But there’s a valuable new opportunity at hand, for borrowers who don’t need extra money now. You borrow as early as age 62 and take the mortgage in the form of a credit line instead of all-cash. You can borrow against the credit line at any time, but you don’t have to take the money now. More important, this credit line grows every year – greatly increasing your borrowing power in the future.

Before I go any further, let me give you some HECM facts:

At present, the credit line comes with one of two adjustable-rate loans – the HECM Standard, which provides a larger loan, and the HECM Saver.

With HECMS, you don’t have to make monthly payments, as you do with a regular loan. The mortgage doesn’t come due until you leave your home permanently. When the house is finally sold, the proceeds go first to repay what you borrowed, plus the accumulated interest. If there’s money left over, it goes to you or your heirs. If the house sells for less than the loan amount, the Federal Housing Administration, which insures HECMs, covers the lender’s loss.

Why take a HECM now? Because mortgage interest rates are so remarkably low. The lower the rates, the more you can borrow against your home equity. If interest rates rise, five or 10 years from now, you won’t be able to borrow nearly as much.

As an example, take a mortgage-free house worth $300,000. At this writing, a 62-year-old could get a $152,658 credit line on a HECM Standard, at an interest rate of 4.07 percent (including the mortgage insurance premium). If rates rise by 3 percentage points, you could borrow only $77,659. With a Saver ARM, which charges lower fees, you could borrow $131,029 today but only $47,329 if rates rise go 3 points higher..

But – and this is a big but – borrowers should not take out the full amount in cash. You’d be leaving nothing to help pay your bills in your older age. If you’re a spender, don’t take a HECM until your mid-70s or 80s.

If you won’t spend all the money now, a HECM credit line gives you tremendous financial flexibility. You owe interest only on the amount you actually borrow. For example, if you use $10,000 to take a trip, interest is charged on that modest amount, not on the entire credit line.

The magic in a HECM credit line is that your borrowing power isn’t fixed, says Jack Guttentag, founder of Mtgprofessor.com, a comprehensive mortgage information site. Your available credit rises every year, by roughly the mortgage interest rate.

For example, take that Saver $131,029 credit line. If mortgage rates plus insurance stay at today’s 4.07 percent , your borrowing power will rise to $196,710 10 years from now (assuming you’ve taken no money out). On the Standard, you could get as much as $229,182. The higher rates go, the more you can borrow.

As for the HECM’s upfront fees, I consider them worth it. They let you nail down a large pool of future borrowing power, at a time when inflation will have driven your expenses up. Our sample HECM Saver would cost about $5,771 and the HECM Standard, about $11,741. The fees can be rolled into the loan.

For a quick look at how much you might be able to borrow with a HECM, check the calculator at reversemortgage.org.

So what’s happening in October? The government will merge the Standard and Saver into a single program, says Peter Bell, head of the National Reverse Mortgage Lenders Association. Limits will be placed on the amount of cash a borrower can take out in the first year. But you’ll still be able to take the maximum in a credit line. The fee might be a tad higher but all the benefits will still be there.

 

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