Information for Financial Planners Archives - Colorado Reverse Mortgage Specialist

Category: Information for Financial Planners

Reverse Mortgage vs HELOC vs Downsizing

Posted on August 11, 2022September 2, 2022 by janjordan

Home equity accounts for approximately 70% of a senior’s assets, not including social security or pension. Often times tapping into this equity becomes inevitable when facing health crisis or financial restrictions in retirement. Using home equity should be part of a larger financial plan and there are a few ways it can be incorporated.

Reverse Mortgage

A reverse mortgage is available to seniors 62 and older with married couples being eligible to both be on the loan if both meet the age requirement. Homeowners who obtain these loans do not make monthly mortgage or loan payments but instead receive the funds in a variety of available options, including monthly installment and a line of credit. The loan does not have to be repaid until the last borrower passes away, at which time there are options available to heirs. The amount of the loan depends on the amount of equity in the home and the age of the borrowers – the older the borrower, the more money they can receive. This is an excellent option for both seniors with questionable retirement funds or the retiree who is looking to boost their portfolio.

Home Equity Loan

A home equity loan (HELOC) also taps into equity by borrowing money against the home. This type of loan will be processed as a conventional loan and monthly payments will need to be made to the lender. Any health or future financial concerns should be thoroughly thought through prior to taking out a home equity loan. Loading up the home with debt during retirement can be risky and could result in loss of the home if the borrowers are unable to make their monthly payments.

Downsize

Another option would be to downsize all together by selling the existing home and moving into a more modest situation. Depending on the amount of equity in the home, a homeowner may be able to sell the home for enough money to comfortably be able to make rent or mortgage payments for 10 to 20 years. Just as with a home equity loan, this option could be risky for a person with health concerns as the funds set aside for housing could be needed elsewhere. For homeowners looking to downsize, a Reverse Mortgage for Purchase is also a very good option. This will allow the borrower to move into the home they desire AND eliminate mortgage payments.

Before making any major decisions regarding how to effectively use the equity in your home, it is best to consult with a financial adviser and a reputable reverse mortgage lender.

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

5 Reverse Mortgage Myths That Need To Go Away

Posted on July 28, 2022August 8, 2022 by janjordan

Reverse mortgages have made a serious comeback in the past several years. After regulation changes were enacted in 2015, the reverse mortgage loan once considered a desperate lifeline is now being used as a retirement tool for even the wealthy. The loans are still only available to seniors 62 and older (including married couples) with the amount of funds available increasing depending on age and appraised value of the home, but now those funds are often being accessed in ways not available before – such as a line of credit or to purchase a home. This really is not your mother’s reverse mortgage, it’s something much more versatile than it was years ago.

Here are some lesser known facts about today’s reverse mortgage:

1.) I’ve said it before and I’ll say it again – the borrower will always remain the homeowner as long as basic responsibilities such as property taxes are paid, homeowners insurance is kept current, and utilities and HOA fees are paid. One of reverse mortgage’s scariest myths has always been that a bank will own the home. This couldn’t be further from the truth. Not only will the borrower remain the homeowner, they will also retain the title.

2.) There are NO mortgage or loan payments. That’s correct. Regardless of how the borrower decides to utilize the reverse mortgage funds, they will not pay a loan or mortgage payment while they remain in the home.

3.) With a Reverse Mortgage for Purchase, borrowers can wrap both the home purchase and the reverse mortgage into the same transaction allowing them to buy their dream home – AND the reverse mortgage will substantially supplement purchasing power allowing a home to be purchased that may have once been out of their price range. When using a Reverse Mortgage for Purchase, the borrower is required to provide some down payment and the reverse mortgage funds will make up the rest of the purchase price.

4.) Married couples can both be on the loan regardless of how the funds are utilized. Another all too common myth is that in the case of a married couple, if one spouse passes away the other spouse will be evicted. When working with a reputable reverse mortgage lender this should never happen. As long as both spouses are 62 or over, they can both be on the loan allowing either borrower to stay in the home until the last spouses passes away or permanently leaves the home.

5.) Heirs are not “saddled” with the debt of a reverse mortgage. After the borrower(s) pass away, there are several options as to what the heirs can do with the home. And in today’s hot housing market, the home may gain equity that can be available to the heirs. Most all reverse mortgages are FHA insured meaning the loan will never exceed the amount of the home sale – even if more is owed, and it also means it will only ever require the amount of the loan even if the home is worth much more when it comes due.

Jan Jordan is a Reverse Mortgage Specialist serving the Erie, Dacono, Fort Lupton, Windsor, Fort Collins, Loveland, Greeley, Longmont, Boulder and other Front Range areas of Colorado. Contact Jan and learn if reverse mortgage is right for you.

Why The Reverse Mortgage Line Of Credit Is So Unique

Posted on July 7, 2022July 15, 2022 by janjordan

The HECM Reverse Mortgage Line of Credit is still relatively new, and to this day many within the financial and retirement industries haven’t fully grasped how it works. Well, they need to get on board because consumers are interested – and they should be. Here’s why..

First, what is a line of credit? Simply put, a line of credit are funds available to you through a financial institution that you can access as needed, or not at all if the need doesn’t arise. Interest is not acquired if the funds are not used. This makes line of credit options excellent safety nets, especially for the purpose of creative retirement strategy.

When looking at a HECM Reverse Mortgage Line of Credit, the two are obviously intertwined, meaning the qualification requirements for any reverse mortgage still apply. These are: age 62 and over, using your primary residence for the loan, this home must meet HUD’s guidelines and needs to be either paid off or have substantial equity, and the borrower must have the financial capability to continue to pay homeowners insurance, property taxes, and the like. Because there are various options to receive the payout from a reverse mortgage, the line of credit is only one of them.

When you have a reverse mortgage line of credit, you have money that is available to you — but you only accrue interest on the money you withdraw. This means the reverse mortgage line of credit can act as an excellent back up source of funds or can be used for retirement fun, whether it be vacation, spoiling grandchildren, or knowing you have the funds available when you’re ready to take on new ventures.

There are other benefits though. This line of credit is pretty astounding beyond just being a safety net.

Growth: Not only are you not paying interest, but your untouched reverse mortgage line of credit can grow in value. Money in a reverse mortgage line of credit grows at the same rate as the interest rate on the loan PLUS 1.25% monthly. So, if the interest rate on your reverse mortgage is 2.50%, then your line of credit will grow at 3.75% (2.50% + 1.25%).

Unique: This growth is unique to reverse mortgage lines of credit — a HELOC for example does not grow.

Hedge Against Falling House Prices: The growth in a reverse mortgage line of credit is guaranteed — without withdrawals, your line of credit is guaranteed to grow. This means you lock in the current value of your home without taking out an interest acruing loan.

Pretty great, isn’t it?

Jan Jordan is a Reverse Mortgage Specialist serving the Erie, Firestone, Fort Lupton, Fort Collins, Loveland, Greeley, Longmont, Boulder and other Front Range areas of Colorado. Click here to contact Jan and learn if reverse mortgage is right for you.

Reverse Mortgage Counseling: What To Expect

Posted on June 30, 2022July 15, 2022 by janjordan

Prior to being approved for a reverse mortgage, HUD’s Federal Housing Administration (FHA) requires each borrow to participate in a counseling session with an approved agency. These not-for-profit agencies are funded by the federal government and work closely with both the FHA and lenders to ensure a smooth process.

The goal of this session is not to steer a potential borrower in one direction or another, but to make sure they clearly understand all aspects of a reverse mortgage.

Here is what you can expect at your counseling session:

The potential borrower will need to schedule an appointment directly with a counseling agency. The lender does not initiate or take part in the session, but can provide you with resources to seek out a counselor. The session will take place in person or over the phone – although the FHA recommends a face-to-face meeting whenever possible.

Prior to your appointment, the counseling agency will provide you with a packet of information to allow you to prepare for the session. During the session the counselor will discuss your immediate and long-term financial needs, your reasons for seeking out a reverse mortgage, address any questions or concerns you may have, and clearly educate you on the process as well as the pros and cons of a reverse mortgage. Again, they are not there to “sell” you on the product, but to educate instead.

Once you have completed the counseling session, you will be provided with a “Certificate of Completion”. This certificate verifies to your lender that you have completed the counseling session and that you understand the essentials of a reverse mortgage. Your counselor will also follow up with you to ensure you have no further needs, questions, or concerns.

How Reverse Mortgage Perception Has Shifted And What It Means For Borrowers

Posted on June 23, 2022July 15, 2022 by janjordan

Since the reverse mortgage industry saw big changes in 2015 then again in 2017, financial advisers, retirement planners, and reverse mortgage specialists are collaborating more than ever before. In an effort to ensure these changes are are thoroughly understood and appropriate solutions are offered to clients, a strong relationship between professionals is vitally important.

Because of these newly developed relationships, it appears a wonderful shift is taking place. Reverse mortgage, once stereotyped as a product for poverty stricken widows or the like, is now being realized as a product of opportunity. More and more we’re seeing affluent and middle class retirees utilizing this option to provide financial stability and financial freedom throughout retirement. The industry has only begun to scratch the surface of those who would benefit or will discover the possibilities when tying a reverse mortgage into their retirement plans.

This paradigm shift will likely increase knowledge across the board regarding both traditional reverse mortgage loans and the reverse mortgage for purchase program. Both products are available for seniors 62 and over.

If you have any questions regarding the changes that have taken place surrounding the reverse mortgage industry in Colorado, please don’t hesitate to contact me.

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

Yes, Married Couple CAN Get A Reverse Mortgage

Posted on June 16, 2022July 15, 2022 by janjordan

It’s not uncommon to hear heartbreaking stories of reverse mortgages that left a spouse in dire straits after the other spouse passed away. How could this happen? Is it something that you need to worry about? If you and your spouse are considering obtaining a reverse mortgage, it’s important to understand the long term effect it could have on either spouse once the other passes away, and feel confident any appropriate protections are in place.

What Married Couples Need to Know

When applying for a reverse mortgage the amount of money you can receive is calculated according to the age of the youngest borrower. The older the borrower, the more money is available from the lender.

If both homeowners are over the age of 62, both homeowners can be on a reverse mortgage loan. If both spouses are on the loan, the loan continues if either passes away and will continue until both borrowers have passed.

Another scenario to consider is if a borrower obtains a reverse mortgage and then remarries. If this was to happen, it wouldn’t be unheard of for the married couple to live in the home for 20 or more years before the borrower passes. At this time the new spouse would not be protected under the existing reverse mortgage loan. If you have reverse mortgage and you remarry, you could consider looking into refinancing the reverse mortgage and adding the new spouse to the loan.

And yet one more thing to note is the possibility one spouse needs to move out of the home into an assisted living facility due to health concerns. If this happens, as long as the spouse that remains in the home is on the loan, they can continue under their current reverse mortgage.

Bottom line: If you are married and are considering obtaining a reverse mortgage, it is extremely important to work with a trusted and experienced reverse mortgage specialist who can easily answer all of your questions and address any concerns you may have. Making sure both spouses are protected should be a lender’s top priority.

The Reverse Mortgage Solution To Divorce Disputes

Posted on May 26, 2022June 7, 2022 by janjordan

It’s becoming more and more common for seniors to divorce after retirement. This is happening for various reasons, but a big one is that retirement now last for decades versus only years, and many people are looking to make those golden years the best yet.

But senior divorces can get messy, as there are often many assets to sort out. During divorce negotiations, a home is often one of these assets. This home is possibly owned free and clear, or with a lot of equity. For divorcees age 62 and over, a reverse mortgage can be used as a tool to help with settling this asset during divorce. The great thing about reverse mortgage is it allows someone to stay in the home and live mortgage payment free, AND access funds from the equity. Here are a couple scenarios in which reverse mortgage would be of benefit.

Scenario 1: When splitting the home asset, instead of selling the home, one party could be allowed to stay in the home and obtain a reverse mortgage, of which the other party receives the funds from. This can be a win-win. In cases like this, the financial settlement can even be wrapped into the loan if the divorce is final before the closing. This would mean a reverse mortgage would be part of the divorce settlement discussion. It is important to understand that the party that remains in the home will be responsible for certain obligations pertaining to the home, such as property taxes and homeowners insurance.

Scenario 2: Possibly you’re used to living off two incomes – whether it be from work, or social security and pensions. Suddenly dropping down to one income can be devastating. In cases like this getting the home in divorce proceedings can be a huge benefit, as once the divorce is final, a reverse mortgage could be obtained on the home. The funds could come in monthly installments, a line of credit (that grows), or a lump sum. In addition, if you wanted to sell the home and move, a reverse mortgage could be used to purchase the new home– and can even allow you seek homes that would otherwise not be in your price range. The best part? You will always live mortgage payment free.

If you are considering a divorce, or sifting through the process, don’t hesitate to contact me to further understand how reverse mortgage can help, and whether or not you qualify.

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

What You Need To Know About Reverse Mortgage Appraisals in Colorado

Posted on May 12, 2022June 7, 2022 by janjordan

Getting assessments on just about anything can seem laborious or tedious, who wants to have something close to them looked at with a magnifying glass? But appraisals for reverse mortgage loans are not only very helpful for everyone involved, they’re required by the lender. Part of what determines the amount of funding available from a reverse mortgage is the appraised value of the home. Luckily the process is very simple.

First, after talking with a reputable reverse mortgage specialist, you will submit your application. The specialist or lender will be the one to contact an appraiser who will in turn contact you to set up a time for them to look at your home.

The procedure is standard and involves three steps, the inspection, the research, and the report.

Inspection:

The appraiser will walk through your home with you, he or she might take photographs. It will document features that add value to your home. If the appraiser takes a picture of something in need of repair it lets you know that it matters and gives you a chance to fix it.

Research:

Once the walk through is done, the appraiser’s work continues as they research factors that influence the value they place on your home. Home sales in your area are one area of research. Others include multiple listing services, tax assessor’s records and public records come into play. Anything that will help to give the present value will be taken into account.

The Official Report:

This is the synthesis of the appraiser’s home visit and all the research. The report is used with your loan request. If photographs were taken, they will be included as well.

The appraiser gives this report to the lender who will give you a copy and an updated reverse mortgage figures taking into account the new information.

There are simple things you can do before the appraiser gets to your home to help your loan request. Read my article about preparing your home for an appraisal by clicking here.

Reverse mortgage is an individualized, specialized loan for those 62 and older that allows seniors to tap into the equity of their home while living mortgage and loan payment free. The funds can be accessed via a lump sum, line of credit, monthly installments, or even to purchase a home. If you are planning ahead let your specialist guide you in the many scenarios that are possible and the two of you can think creatively about your needs and desires.

Jan Jordan is a Reverse Mortgage Specialist serving the Fort Collins, Loveland, Greeley, Longmont, Dacono, Erie, Boulder and other Front Range areas of Colorado. Click here to contact Jan and learn if reverse mortgage is right for you.

Breaking Down The Costs Of A Reverse Mortgage In Colorado

Posted on May 5, 2022 by janjordan

Over the years reverse mortgages have shifted from being a choice of last resort to a creative and effective retirement planning tool. But still many who do not fully understand how reverse mortgages function will immediately bring up the perceived high cost of originating the loan.

When all costs and variable options are considered, the opposite is true. Reverse mortgages actually cost considerably less when used as a source of income when compared to a portfolio or continuing to make payments from a portfolio after the age of 62. They also allow for financial freedom during some of the most important and valuable times in life.

Let’s start by looking at the actual costs. People are generally familiar with the costs that come with a traditional forward mortgage. They do vary by state but consist of lender fees, third party fees like appraisals and title costs, origination fees, PMI and other miscellaneous costs.

All of those are similar to a reverse mortgage with the exception of one difference: Mortgage Insurance Premium (MIP). This is a 2% fee based on the home value which goes to the FHA to insure the loan.

So, what does that insurance fee get you? Why is it required?

In the case of a traditional forward mortgage, insurance encourages the lender to lend to a borrower with a lower credit score or a small down payment so they are insured by the mortgage insurance company if there is a default. Reverse MIP is much more powerful than forward PMI. It not only insures the lender, but also the borrower AND the borrower’s heirs. The reverse mortgage is a non-recourse loan that requires no payments until the borrower passes away or moves out of the home permanently. That’s a solid guarantee.

As we’ve seen the past few years here in Colorado, home values continue to rise. And just as we’ve seen before, that’s not guaranteed to continue forever. No one really knows what the home value will be next year or a decade from now. With this MIP, the borrower can live a very long life, and even if the home value plummets, if the balance on the loan is more than the value of the house, the MIP fund pays out the loss to the lender. The borrower, or the borrowers’ heirs, will never be responsible for any negative gap between loan balance and home value or any tax liability.

Additionally, it’s very common that there is equity left over to pass on to the children because the home value has increased faster than the loan balance. In this case, even with the FHA insured loan, the heirs will always receive any equity in the home.

Now how do you calculate these additional costs into a financial portfolio? Let’s look at some ways a reverse mortgage can be used.

The first factor is often also the biggest benefit – eliminating a mortgage payment so that cash flow is freed up to invest or use for other purposes. Currently 44% of seniors reaching the age of 62 are still making a mortgage payment. Most can afford it, but it needs to be asked if this is the best use for the money.

The second factor to consider is for those who are wealthy and have what one would consider “plenty of money” with homes that are already paid off. These people still have a cost of living, and often it is high. The funds to maintain their lifestyles has to come from somewhere, whether passive or active income. A reverse mortgage just acts as another source of income, and it is often the most efficient and cheapest income available to someone past 62. Advisors can keep their senior clients fully invested in longer term portfolios while maintaining a cash reserve in the reverse mortgage line of credit. And that line of credit is guaranteed never to be cancelled or closed as long as the borrower meets their basic responsibilities such as paying homeowners insurance, taxes, and other basic fees such as HOA. It also requires no payments and is guaranteed to increase every year that goes by even if the house value does not.

And the third factor is quality of life. As these individuals plan for the rest of their lives in a way only retirees do, the answer isn’t always calculated in dollars and cents, it’s calculated in time spent vacationing with grandchildren and creating memories with friends and spouses. This particular return on investment should never be overlooked.

Jan Jordan is a Reverse Mortgage Specialist serving the Fort Lupton, Erie, Lafayette, Fort Collins, Loveland, Greeley, Longmont, Boulder and other Front Range areas of Colorado. Click here to contact Jan and learn if reverse mortgage is right for you.

Social Security Is On Track To See The Highest Increase In 40 Years

Posted on April 22, 2022May 5, 2022 by janjordan

The Social Security Administration is responding to the highest inflation rates in 40 years with what’s expected to be the biggest cost-of-living raise in decades.

According to Fortune:

Social Security checks increased by 5.9% this year relative to last, one of the biggest boosts retirees had seen in some time. And with inflation still sky-high — the consumer price index jumped 8.5% in March — they may get an even bigger increase next year.

The 2023 cost-of-living adjustment, or COLA, could be as high as 8.9%, according to a preliminary analysis released Tuesday from the Senior Citizens League, a nonpartisan seniors’ advocacy group. It’s possible it could climb even higher than that, depending on what happens with inflation in the next few months, says Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.

The official Social Security COLA will be announced in October, which means there is still six months’ worth of economic data to be taken into consideration before it is finalized.

“I have never witnessed inflation this high,” Johnson says. The Social Security COLA is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, a more general inflation measure than the headline Consumer Price Index for all Urban Consumers, or CPI-U. The CPI-W weights clothing, food, and transportation costs more heavily than the CPI-U.

The COLA was just 1.3% in 2021, and raised Social Security Income by an average of about $20 per month. This year, the average retiree’s checks are $92 bigger each month, says Johnson.

Though inflation is hard on all consumers, it is particularly painful for retirees who live on a fixed monthly income. Johnson points out that though 2022 and 2023 are likely to see record increases, they won’t be able to make up for years of increases that averaged around just 1.4%.

Social Security used to make up just one part of the typical senior’s retirement income, in addition to pensions and workplace savings. Pensions are rare these days, Johnson notes, and many people are not saving enough for retirement on their own, many because they cannot afford to do so.

“Because they’re not working, they have to have a good savings plan and emergency savings” to fall back on, she says. “But our brains are not wired to think long-term like that.”

Reverse mortgages are an excellent tool to help balance the uncertainty of retirement funding, whether by cushioning investments in a volatile market or delaying Social Security benefits.