Month: May 2014

Reverse Mortgage and the ‘Standby’ Strategy

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In a recent Bloomberg article, the author laid out the case for using reverse mortgage as a responsible option for long-term financial planning.  Assistant professor of financial planning at Texas Tech University, John Salter, and two of his colleagues put the scenario to the test.

 

Here is what they found:

 

Salter and two colleagues set out to determine if there was a place for reverse mortgages in responsible long-term financial plans. They started by looking at the prospect for a 62-year-old relying on a $500,000 investment portfolio to fund retirement. To reach a 90 percent probability that the money will last 30 years, the retiree could take out just under 3.25 percent of the portfolio’s value annually. (The portfolio is 60 percent stocks, 40 percent bonds.)

The outlook brightened after the planners used what they dub a ‘standby reverse mortgage’ strategy, based on a home valued at $250,000. In a falling market, the reverse was tapped, rather than the portfolio. The retiree repays the money when the market recovers. That supports a 5 percent withdrawal rate, with a 90 percent probability of the money lasting 30 years, Salter says.

Reverses can also be used to create monthly income. Gerald Wagner, CEO of Ibis Software, which does reverse mortgage analysis, crunched some scenarios to test that out. He started with a base assumption of $450,000 in home equity and an $800,000 investment portfolio with a 60/40 allocation. In general, adding the reverse to the mix supported a sustainable withdrawal rate between 5 percent and 6 percent.

Also in reverse mortgages’ favor is tax treatment. The money pulled out is tax-free income and doesn’t count when computing taxes on Social Security income. And a reverse line of credit can help delay taking Social Security until age 70, when retirees get the largest payout.

 

 

In order to qualify for a reverse mortgage, the individual must own their home, be at least 62 years old, and have some equity in the home. There are no income, credit, or medical requirements. In general, the older the borrower (or the youngest borrower in the case of couples) and the more valuable the home, the more money available. Other factors also come into play, such as: the appraised home value, interest rates, and the amount of equity in the home.

 

Jan Jordan is a Reverse Mortgage Specialist serving the Fort Collins, Loveland, Longmont, Greeley, and Front Range areas of Colorado as well as Cheyenne and Laramie, Wyoming. Click here to contact Jan and learn if reverse mortgage is right for you.

A Great Solution for Seniors : Reverse Mortgage

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To most, elderly and nursing homes go hand in hand.  But did you know when speaking with elderly people, one of their biggest fears is being placed into a nursing home?  And who can blame them?  According to National Center on Elder abuse, one study interviewing 2,000 nursing home residents reported that 44% said they had been abused and 95% said they had been neglected or seen another resident neglected.  When considering the psyche of an older senior, nursing homes or convalescent homes mean “end of life”.   Often times adult children don’t know a better solution as the needs of the parents increase, the home is no longer suited for their parent, and they do not have the funds or the time for in home care.   This is where reverse mortgage becomes a very important option.

 

Reverse mortgage is a great method to finance in-home care to avoid nursing homes, or pay for medical care, and fund home modifications.  For seniors who are looking to situate long term and prepare to live their senior years in their own home, a move to a new residence closer to family or more suited for senior life may be in order.  The reverse mortgage for purchase is perfect option for these situations.  Reverse mortgage for purchase allows the purchase of a new residence using a reverse mortgage while still employing the perks of a traditional reverse mortgage – living mortgage payment free.  In addition, reverse mortgages do not affect social security, pensions, or medicare.

 

Both reverse mortgage for purchase and traditional reverse mortgage are available to seniors 62 and over, with no income or credit requirements.

 

Jan Jordan is a Reverse Mortgage Specialist serving the Fort Collins, Loveland, Longmont, Greeley, and Front Range areas of Colorado as well as Cheyenne and Laramie, Wyoming. Click here to contact Jan and learn if reverse mortgage is right for you.

Reverse Mortgage in Retirement : Now or Last Resort?

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Research suggests that many baby boomer and beyond retirees will not be in a financial position to avoid using home equity as part of their retirement strategy, meaning they will be increasingly turning to reverse mortgage. Senior homeowners are more commonly seeking advice from their retirement planners on whether to consider a reverse mortgage now proactively, or later as a last resort. So, what is the right answer?

 

A recent study compared the efficacy of two simple strategies: (1) establish a reverse mortgage line of credit at age 62, under current lending and interest rate environments – but do not use the line of credit until the retirement investment portfolio is exhausted.  Or option (2) wait until the investment portfolio is exhausted, if ever, and establish a reverse mortgage line of credit then, and subsequently begin to use the proceeds to support income needs until that line of credit is exhausted.

 

Conclusion: The results showed an estimated 30-year survival advantage for early establishment. This holds true under various future interest rate and home appreciation scenarios for real withdrawal rates between 4 percent and 6 percent. However, postponing the establishment of an HECM line of credit should be considered when the adviser and/or client has good reason to believe that home occupancy after loan origination is likely to be short.  In a recent blog article, I discussed how a reverse mortgage line of credit increases each month, and the feature is more valuable the longer the borrower wants to stay in their home.  Read it here.

 

Get the full report on this study from Journal of Financial Planning here.

 

Seniors 62 and over are eligible for a reverse mortgage regardless of income or credit.  Use of home equity as part of a retirement planning strategy is becoming more and more realistic as baby boomers face an uncertain economy.  Contact me for more information.

 

Jan Jordan is a Reverse Mortgage Specialist serving the Fort Collins, Loveland, Longmont, Greeley, and Front Range areas of Colorado as well as Cheyenne and Laramie, Wyoming. Click here to contact Jan and learn if reverse mortgage is right for you.

5 Things You Should Know About A Reverse Mortgage

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If you’re a senior over 62, reverse mortgage marketing will begin to creep into your life.  It’s inevitable.  Sometimes it’s big, flashy promises and other times it’s scary horror stories.  To help you filter through the hype, here are 5 important things every senior should know about a reverse mortgage:

 

1. You do not make monthly mortgage payments.  Yes, that’s right, homeowners with a reverse mortgage do not need to make monthly mortgage or interest payments as long as they live in the home and keep it as their primary residence.  Borrowers will be required to continue paying property taxes, homeowners insurance, general upkeep, and standard utilities (such as water, gas, and electricity).

 

2. There are no credit or income requirements.  It’s true, there are no credit and income requirements to obtain a reverse mortgage.  There are, however, borrower and property eligibility requirements.  For example, the borrower must be age 62 or older.  The home must be their primary residence and the property type will need to meet certain HUD guidelines, meaning it must be a:

  • Single family home or 2-4 unit home with one unit occupied by the borrower
  • HUD-approved condominium
  • Manufactured home that meets FHA requirements

3. You can use a reverse mortgage to purchase a home – even if you’ve never been a homeowner before.  There are a few options to use a reverse mortgage to purchase a home.  When purchasing a home, the borrower will be required to make a down payment, but will enjoy living mortgage payment free in this new home.  Click here for much more information about purchasing a home with a reverse mortgage.

 

4. Married couples can both be on a reverse mortgage.  If both borrowers are 62 and over, both can be on the reverse mortgage.  If a spouse passes or moves to an assisted care facility, the remaining borrower can stay in the home.  A reverse mortgage lender should be able to answer any questions regarding married couples and ensure both spouses feel confident in their decision.

 

5. You retain to the title to your home.  Yes, you are still the “owner” and you will always retain the title to your home.

 

Jan Jordan is a Reverse Mortgage Specialist serving the Fort Collins, Loveland, Longmont, Greeley, and Front Range areas of Colorado as well as Cheyenne and Laramie, Wyoming.  Click here to contact Jan and learn if reverse mortgage is right for you.