More Safeguards For Reverse Mortgages = Even More Peace Of Mind

No one is useless in this world who lightens the burdens of another.”- Charles Dickens

ADDITIONAL CONSUMER SAFEGUARDS FOR REVERSE MORTGAGES

Home Equity Conversion Mortgages (HECMs) are the most common and most popular type of reverse mortgages. HECMs are backed and insured by the FHA to reduce borrower risk, and serve as a useful financial tool for many individuals looking to supplement their retirement income.

Now even more structured with the borrower in mind, the HECM loan is designed to help borrowers, age 62+, convert some of their home equity into cash – so they can live more comfortably and with greater financial independence.

Built into this strategic financial tool are important, recent safeguards for additional security:

  • Tightened lending limit helps borrowers preserve revenue steam for better long-term money management;
  • The annual mortgage insurance premiums borrowers are required to pay over the course of their loans has dropped from 1.25% to 0.5%;
  • The initial MIP required has increased to 2% for all borrowers. However, this represents a reduction for borrowers who take out larger reverse mortgages and were paying a 2.5 percent upfront premium.

Additional Previous Changes for Borrower Security:

  • Updated non-borrowing spouse protections;
  • Financial assessment helps determine if borrowers are willing and able to meet financial obligations;
  • LESA – Life expectancy set asides use HECM proceeds to pay taxes and insurance.
EXISTING PROTECTIONS YOU CAN ALWAYS RELY ON 

No Monthly Mortgage Payments
A reverse mortgage does not have to be repaid until you sell, move or no longer live in your home.

No Surprise Costs
During the application process, you’ll receive a clear and detailed breakdown of all fees and closing costs, including the total loan costs over the projected life of the loan.

Asset Protection
HECMs are non-recourse loans. After the loan is repaid, any remaining equity belongs to you or your heirs. This means that you can never owe more than the value of your home at the time you or your heirs sell your home to repay your reverse mortgage.

With a HECM, the reverse mortgage debt may be satisfied by selling the home to pay the lesser of the mortgage balance or 95% of the current appraised value of the home.

Independent Counseling
To ensure that you understand all aspects of a reverse mortgage, you’re required to have a counseling session with an independent counselor who’s approved by the U.S. Department of Housing and Urban Development (HUD).

Limitation On Fees
Origination fees are regulated by the U.S. Department of Housing and Urban Development (HUD), and cannot exceed HUD limits. In addition, origination fees and closing costs may be financed as part of the reverse mortgage, so out-of-pocket expenses can be minimal.

No Prepayment Penalty
Although a HECM loan is not due until the borrower permanently vacates the home, it can be paid off at any time, with no additional fees.

FHA-Insured
Insured by the Federal Housing Administration (FHA) to protect lenders and borrowers alike. This insurance guarantees you will receive your loan proceeds as agreed upon with the lender at the closing of the loan.

Are Your Retirement Ready?

Please think about your legacy, because you are writing it every day.”- Gary Vaynerchuk

WHAT’S YOUR RETIREMENT READINESS QUOTIENT?   

Retirement is a significant stage in life that can cause a number of different emotions depending on how well prepared you are, not only financially but mentally.

Some of my clients have a very clear picture of their retirement and have been working towards achieving their vision for many years while others are not there yet emotionally, mentally or financially to make the transition.

Gene Cohen, M.D., Ph.D., author of The Mature Mind: The Positive Power of the Aging Brain, has developed a 12-point questionnaire to help you determine your Retirement Readiness Quotient (RQ).

Cohen states, “If you have not given much thought to any of these questions, or if you do not have many good answers for them, you are probably not well prepared for retirement.” 

12 Questions to Ask Yourself About Retirement from Gene Cohen: 

1) Why are you thinking about retirement now? (Give yourself 1 point for a clear answer, 0 points if your reasoning seems fuzzy or you are simply uncertain.) Significance: Your reasons for retirement should be sound and not impulsive or the result of inadequate planning. 

2) Do you really want to retire? (1 point if yes, 0 if no.) Significance: This seemingly simple question is an excellent predictor of success in the transition to retirement. It asks you to consider your deepest desires and motivations, not just what you “think” you ought to do or what other people expect you to do.

3) What do your family and friends say about you retiring? (1 point if they think you’re doing the right thing.) Significance: Feedback from those who know you well can be invaluable when you’re contemplating retirement. Do they think it’s a good decision? Do they think you have thought it out well and prepared sufficiently for it? 

4) Have you considered whether you want a complete or partial retirement? Have you considered part-time or temporary work, or even a less-than-fulltime small business venture (emphasis on “considered”)? (1 point if you’ve considered the options, even if you choose full retirement.) Significance: If you are not entirely sure about retirement or are concerned about finances, then phased, or partial retirement is an important option to consider. 

5) Are your finances sufficient to carry you through your retirement years while continuing to enjoy your current lifestyle? (1 point if yes to both parts of question; 0 if no to either part.) Significance: If you answered no, you clearly have further financial planning to do. 

6) Have you attended a retirement preparation program or seminar focused on financial planning? (1 point if yes, 0 if no.) Significance: Such programs can help you plan spending, predict future income, and anticipate future needs. A bewildering number of options exist, and getting some objective advice is invaluable. 

7) What gives you a sense of meaning and purpose in life? (1 point if when you write it down and read it aloud you feel you’ve adequately identified what gives you a sense of meaning and purpose; 0 points if your reasoning seems fuzzy or you are simply uncertain.) Significance: A lack of clarity about your core values and what aspects of life hold meaning for you is often associated with a less fulfilling retirement.

8) What specific types of activities and experiences are important and fulfilling for you? (1 point if your description of how your plans relate to what is important to you makes sense, or 1 point if someone who is reliable and knows you considers your answer good and clear.) Significance: This is a more specific version of question 7. Your answers here provide a window on how well you really know your mind and how well you have planned how to accomplish what is important to you. 

9) Have you attended a retirement preparation program or seminar focused on social planning (e.g., community activities and interpersonal endeavors)? (1 point if yes, 0 if no.) Significance: Prospective retirees often fail to adequately plan how they will actually spend their time in retirement. Floundering in these areas can lead to frustration and a disappointing retirement life.

10) Have you developed outside interests, hobbies, volunteer activities, or areas of new learning? (1 point if yes, 0 if no.) Significance: Developing new interests can improve the quality of retirement life, and engaging in challenging new endeavors can present new opportunities for personal mastery and empowerment that are associated with positive health outcomes. 

11) Have you planned new activities that would allow you to interact with people on a regular basis and that offer chances to form new friendships? (1 point if yes, 0 if no.) Significance: Making new friends is often more difficult in retirement, and loneliness is associated with a host of mental and physical ills.

12) During retirement, will making only a modest contribution in volunteer activities be sufficient for you? (1 point if yes, 0 if no.) Significance: People who have had satisfying and personally meaningful careers can find the transition to retirement difficult if they do not plan for other ways to make a difference. Such people might consider a phased retirement so they can continue with fulfilling work while starting their retirement.

SCORING
  • 12 points: You’re in position for a great retirement!
  • 10-11 points: Your retirement will likely be highly satisfying.
  • 8-9 points: Your retirement could have problems that are likely fixable.
  • 6-7 points: You could be challenged by ambivalent feelings about retirement, requiring a solid effort to bring your situation up a notch.
  • 3-5 points: You are potentially in the trouble zone where your retirement might not work well unless you make a major effort to get it on track.
GETTING RETIREMENT READY WITH A REVERSE MORTGAGE 

You’re not alone if your RQ is not where you want it to be or is lower than expected. Fortunately there are many experts, resources and tools out there that can help and one effective financial solution is a reverse mortgage.

Reverse mortgages have undergone several major changes for the better over the years, which has led many financial professionals to take note. Now when used as a part of a coordinated retirement planning strategy, a reverse mortgage can improve the overall success rate of your portfolio and help make your vision for retirement a reality.