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Tag Archives: Reverse Mortgage Benefits

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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Study: 90% of Boomers Report Retirement Losses of $117,00+

Alyssa Gerace | June 11, 2013 Money

From low interest rates to lower-than-expected home equity, the Great Recession took a major toll on baby boomers’ nest eggs in a few ways that helped derail retirement plans, according to an Ameriprise Financial survey.

Ameriprise surveyed a group of 50- to 70-year-olds with at least $100,000 in cash savings and found that 90% reported experiencing at least one economic or life event that negatively impacted their retirement savings by an average of $117,000.

Another 40% said they were hit by five or more unexpected events, with average losses totaling $144,000.

“The lesson that we are taking away is expect the unexpected,” said Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial, in the report.

The most commonly cited “derailer” stemming from the Great Recession? Low interest rates, according to 63% those surveyed, which have impaired the growth of retirement assets (63%)

Other top derailers for retirement savings, according to Ameriprise, have been market declines (55%) and lower-than-expected home equity (33%). Retirement prospects for another 18% were compromised by job loss, while 23% cited supporting grown children or grandchildren as a derailer.

“The financial fallout from these events can be dramatic, costing Americans an average of $117,000 in savings,” said de Baca, adding that affluent individuals with investable assets of $750,000 or more took an average $177,000 hit.

As a result, nearly half of those surveyed reported less retirement savings than they had expected. Only 18% said their nest egg is larger than expected.

The research uncovered an “alarming” trend, says Ameriprise: As a whole, Americans nearing retirement are underprepared. The survey uncovered an approximately $250,000 gap between what respondents think they need to retire, and what they’ve actually set aside. More than half said they wished they had started saving earlier.

However, only 35% believe their ability to afford essentials in retirement will be affected ‘a lot’ or ‘a fair amount,’ while more than two-thirds still charactizer their road to retirement as ‘smooth’ rather than ‘bumpy.’

 

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Lower Cost HECM Means Better Suited For Short Term Goals

Cash at Home: Two recent government moves could make reverse mortgages cheaper and easier for older homeowners to understand. The loans, which generally let people 62 or older convert their home equity into cash, traditionally have had high closing costs and have been most useful for people planning to stay in their homes for the long haul. But a new federally backed product, the HECM (Home Equity Conversion Mortgage) Saver, has cut the upfront mortgage-insurance premium to 0.1% from 2% of the property’s value. The change makes the product better for people with short-term needs, says Barbara Stucki, vice president of home-equity initiatives for the National Council on Aging, a Washington, D.C., advocacy group.

Also last month, the Department of Housing and Urban Development began requiring all HUD-approved reverse-mortgage counselors to give their clients the aging council’s 28-page consumer booklet on reverse mortgages, walk them through a new “Financial Interview Tool,” and offer to see what other assistance might be available using the council’s BenefitsCheckUp program ( benefitscheckup.org ).

To learn more, see the aging council’s booklet “Use Your Home to Stay at Home,” at ncoa.org/reversemortgagecounseling.

 
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Posted by on October 26, 2010 in Uncategorized

 

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“HECM Saver”: New option lowers Reverse Mortgage costs AGAIN!!

If you have been toying with the idea of taking out a reverse mortgage, note that the market today is significantly different from what it was just a couple of months ago.

Monthly insurance premiums on new loans went up last week, making an expensive product even more so. But the Department of Housing and Urban Development has offset that rise by introducing another reverse mortgage — the Home Equity Conversion Mortgage Saver — which slashes the upfront cost.

“It’s a mixed bag,” says David Certner, legislative policy director for AARP, of the reverse mortgage market.

A reverse mortgage is suited for older homeowners who have lots of equity built up in their home, but little cash and no other ways to increase their income. The amount you can borrow is tied to your age — you must be at least 62 — the value of your home and the interest rate. And you can get the money in a lump sum, monthly payment, line of credit or any combination of these.

Unlike a traditional mortgage, you don’t make monthly repayments with a reverse mortgage. Instead, the principal, interest and fees add up month to month. The loan is repaid when you sell the house, move out or die.

High fees have been a major drawback of reverse mortgages. With these loans, you have many of the same expenses you do with any mortgage, such as an appraisal. On top of that, the origination fee on a reverse mortgage can be up to $6,000.

You also must pay a monthly mortgage insurance premium for reverse mortgages that are federally insured, which is almost all them. This insurance protects lenders in case a house ends up being worth less than the amount borrowed and covers borrowers in case a lender fails.

That monthly insurance premium last week for new loans went from an annual rate of 0.5 percent on balance to 1.25 percent. This was raised to protect the government — and ultimately taxpayers — from having to make big payouts to lenders because of falling house prices, Certner says.

The new HECM Saver reverse mortgage offers some relief, though, by substantially cutting one of the upfront fees.

With the standard reverse mortgage, borrowers must pay an upfront insurance premium worth 2 percent of the value of the property, up to a certain limit. That’s $4,000 on a $200,000 house.

The Saver loan’s upfront premium is 0.01 percent, or $20 on that same home.

With current losses in senior equity retirement accounts (IRA’s, 401k’s) since 2007, this latest revision by HUD should be greatly received by many seniors and their financial advisers,  as a solution to supplementing depleted retirement funds at greatly reduced costs.

 
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Posted by on October 19, 2010 in Uncategorized

 

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History Is Made: Seniors Outnumber Teens in Workforce

Senior butcher“It’s good news and bad news depending on the perspective you’re looking from,” says Mary Hladio, president of the Cincinnati-based Ember Carriers, a workplace/workforce management firm that helps mid-sized manufacturing firms with succession plans. “My clients are sticking around longer — they’re 69- and 70-years old and they’re vibrant, but they’re thinking they want to eventually retire.”

But they don’t. At least, not at the rate and age of previous generations. Government estimates show 6.6 million people over the age of 65 worked or looked for work in the first six months of 2010, compared to 5.9 million 16- to 19-year-olds.

“I think a couple of things are happening,” Hladio tells Selling to Seniors. “The Baby Boomers are getting older and we’re seeing the effects of them hitting the market in larger numbers; it also means that Americans are working longer before retiring because they’re living longer and they have the ability to live a fuller life.”

They’re also keeping their careers because “the economy took a hit on their portfolio and they have to work to supplement their income,” she says. “The good news for employers is that they’re going to have someone who is going to show up and be productive and reliable, as opposed to hiring a teenager.”

Employers are actively seeking to retain their older employees just for those reasons, says Steve Isaac, CEO of EducationDynamics. And one way they do that is to pay for higher education for seniors. EducationDynamics is a higher learning marketing company based in Hoboken, N.J.

“We’ve seen a rise in companies investing in current employees,” says Isaac, citing an EducationDynamics survey that revealed some 80 percent of New York companies are paying for employees to get advanced degrees.

“In the past we saw people jumping from job to job to pursue higher salaries and new opportunities,” he tells STS. “Tuition reimbursement not only fosters a more intelligent work force, but a more loyal one. With the support of their companies, these employees will hone their skills and remain in their current positions for longer. It is an investment.”

Teens lose jobs in 100s of thousands

Older employees “bring a wealth of history that you can’t get anywhere else,” says Hladio. “The bad news for seniors is that because they have this wealth of knowledge they tend to command higher compensation. [Employers] have to answer the question, do I bring the college student in at an entry level salary or do I pay for this 25-year history that [a senior] has?”

The competition between seniors and teens isn’t just for higher-compensating white-collar jobs. The government reports that from 2000 to 2009, teens in food preparation — typically an entry-level, minimum-wage occupation — lost 242,000 jobs while workers over 55 gained 128,000 jobs.

Similarly, in sales and related fields, teens lost 532,000 jobs while Boomers and seniors gained 822,000. And in the better-paying, more career-oriented fields of office and administrative, teens lost 553,000 jobs while seniors gained more than a million, at 1,091,000.

Info: Ember Carriers is at www.embercarriers.com. EducationDynamics is at www.educationdynamics.com. To see the report from the Bureau of Labor Statistics, see http://www.bls.gov/opub/ils/pdf/opbils49.pdf.

For additional senior information about retirement financing using a US Government guaranteed Reverse Mortgage, you may reach Larry Benton at 877.805.2905 or asklarrybenton@gmail.com

 

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Competitive Climate Drives REVERSE Costs Down

NewImage.jpg Older consumers looking to access home equity through a reverse mortgage will find that a new competitive climate has reduced out-of-pocket costs considerably according to the Star Telegram.

Starting October 4th, consumers will have access to the HECM Saver, which will allow access to just part of a homeowner’s equity at a reduced cost.

“Reverse mortgages are becoming more mainstream.” said Scott Norman, president of the Texas Mortgage Bankers Association. “A reverse mortgage is not for everybody, but every extended family in Texas has a member that could benefit from one.”

Reverse mortgages, which have been available in the state for 11 years, allow senior citizens 62 and older to convert equity in their house into tax-free income without having to sell the home, give up the title or take on a new mortgage payment. When the borrower leaves the house, the loan is either paid off or the property reverts back to the lender.

Reverse mortgages are starting to gain traction in Texas. The state’s seniors took out 7,495 reverse mortgages in 2009 for an average home value of $178,920, according to data from the bankers association. Over the past 10 years, there have been 35,702 reverse mortgages for a total value of $3.3 billion.

Now’s the time to take another look at reverse mortgages!

 
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Posted by on October 5, 2010 in Uncategorized

 

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