Reverse Mortgages: Myths vs. Realities

“What you do today can improve all your tomorrows.– Ralph Marston

REVERSE MORTGAGE MISCONCEPTIONS 

A reverse mortgage can be an effective retirement planning tool to increase your income streams using one of your largest assets: your home.

Yet many eligible seniors avoid reverse mortgages or are not inclined to consider them due to the many misconceptions that exist about these types of loans.

Let’s tackle a few of the common misconceptions: 

Myth: The lender takes title to the home.
Truth: You still retain ownership of your home. The reverse mortgage is only a lien against the property.

Myth: The loan can exceed the value of the property, sticking you or your heirs with a large bill when you eventually leave your home.
Truth: A reverse mortgage is a “non-recourse” loan, which means that you, your heirs, or your estate will never owe more than the appraised value of the home at loan maturity.

Myth: You can’t get a reverse mortgage if you currently have a conventional mortgage.
Truth: Although this is true, you can get a reverse if you use the proceeds to pay off your existing mortgage at close.

Myth: A reverse mortgage can cause you to be evicted from your home.
Truth: You leave your home when you choose. No one will force you from your home. The reverse mortgage is not due until your home is no longer your primary residence.

The Reverse Mortgage: not your typical loan

One of the biggest advantages of a reverse mortgage is that unlike conventional mortgages, there are no payments involved.

Instead, the lender makes payments to the borrower either through a lump sum, monthly payments, or a line of credit.

Financing home healthcare with a reverse mortgage

More seniors in the US are opting to stay at home and age in place and face the financial challenge of paying for home healthcare, which can be quite expensive.

Medicare and Medicare supplements are frequently used by seniors or their family to cover these costs but it’s often not enough.

A reverse mortgage could be the ideal solution it help ease the financial burden of in-home healthcare. Learn more in my new email covering home healthcare: https://bit.ly/2tRTEIF 

 

How to Finance Aging in Place Renovations: A Fully Accessible Guide

The majority of people ages 65+ are preferring to stay in their homes as they get older.

This popular alternative to relocation is known as aging in place and typically requires some retrofitting of your home to accommodate growing older.

Here’s a practical guide on the ways to finance aging in place renovations, including leveraging a reverse mortgage:

https://www.bankrate.com/loans/personal-loans/aging-in-place-renovations/

Rightsizing with a Reverse Mortgage

Moving into a new, smaller home with a reverse mortgage can be an ideal way to “rightsize” your life.

See my latest email on rightsizing and download the Q&A for more information:

https://bit.ly/2yGqlxP

Turning millennials into homeowners with reverse mortgages

As more parents are helping their children become homeowners, reverse mortgages are being recognized as a way to accomplish this but with fewer roadblocks.

It’s becoming more challenging for first time homeowners to quality for much money with interest rates increasing and the benchmarks getting higher.

A reverse mortgage is a way to get this younger generation into news home quicker without costing them or their parents any cash and enables the parents to keep their investments and have a guaranteed flow of income to support their lifestyle.

https://bit.ly/2KBJNNd

Supplementing social security in retirement. A reverse mortgage could be an ideal solution.

Social security supplements around 40% of a retiree’s average income in most cases, leaving two options for your retirement years – reducing your standard of living significantly or finding ways to create additional income from other sources.

There are a few strategies to supplement social security including a reverse mortgage. Reverse mortgages can provide a strategic solution to create income leveraging the equity on your home.

Check out this overview on 5 Income Strategies to Supplement Social Security highlighting reverse mortgages as a smart method to create income stream without touching your retirement nest egg:

https://bit.ly/2IzY3W5

Managing the timing and sources of your income in retirement

Managing your sources of income in retirement is never easy and is completely difference from managing the income you received during your working years.

As a retired person, you can receive income monthly, quarterly, annually and in some cases not on a regular basis. And most likely you’ll receive income from investments that you’ll need to monitor, manage and protect to ensure that they last. It can be overwhelming at times.

Here’s an overview on the different types of retirement income, some practical advice and ideas for potential retirement income, such as leveraging your home equity with a reverse mortgage: https://bit.ly/2rW1eRM.

The new normal: Carrying debt at age 75 and up

According to some new research from the Employee Benefit Research Institute the percentage of older individuals with debt has been increasing over the past 10 years, in particular for those 75 and over.

The group issued a new analysis of Federal Reserve figures showing that close to 50% of retirees ages 75 and up now have some loans outstanding – up from 25% back in 1992 – with the most significant debt increases coming among lower-income seniors.

The median debt owed by this age group ($20, 900) is below the average debts owed by Americans at younger ages. Yet debt can be a significant issue for the 75+ community considering the lack of opportunities to boost their incomes.

This article examines what’s causing this debt trend, the consequences and points out some solutions including reverse mortgages to help lock in some steady income during retirement years.

https://bit.ly/2Iy8Nse

HUD raises costs on reverse mortgages

The Trump administration announced Tuesday that it was raising the premiums for most reverse mortgages and lowering the maximum amount that can be borrowed in an effort to stem the tide of losses to the Federal Housing Administration (FHA) insurance fund.

FHA’s overseer, the U.S. Department of Housing and Urban Development (HUD), said the reverse mortgage program has been a big net loser for the insurance fund over the years, and is perilously close to needing a bailout from taxpayers. Effective Oct. 2, it was restructuring the annual premiums and lowering the principal limit factor, which determines how much a person can borrow.

HUD officials said the change will result in a net increase in costs for most borrowers, and could potentially reduce the initial volume of reverse mortgages by 10 to 20 percent annually. The upfront premium will be increased to 2 percent. Currently, the upfront charge is either 0.5 percent or 2.5 percent, depending on how much is drawn in the first year. The annual premium will be reduced to 0.5 percent from 1.25 percent.

Also the maximum loan limits will be reduced.

Reverse mortgages, which are formally known as home equity conversion mortgages (HECMs) can be taken as a lump sum, line of credit or through monthly payments. HUD officials presented the theoretical case of a 62-year-old borrower, with a reverse mortgage at 5 percent. For each $100,000 in home equity, the borrower will now be allowed to borrow $41,000, which is down from $52,400.

Reverse mortgages, which represent a fraction of the overall FHA loan guarantees (there were fewer than 50,000 in fiscal 2016], have been a source of volatility for the insurance fund. Borrowers are projected to incur more losses in future years than they pay in premiums. HUD said the program has already resulted in a net cost of $11.7 billion to the FHA MMI fund since fiscal 2009. The economic value of the program at the end of the last fiscal year was estimated at negative $7.7 billion, the agency said. This number has bounced around, however. In fiscal 2015, by contrast, the HECM program was valued at a positive $7.4 billion.

A drag on the MMI fund
HUD officials say that the program is being propped up by the premium payments of younger borrowers of traditional forward mortgages. Reverse mortgages are a reason that HUD has not been able to lower the premiums on a traditional FHA loan. In a fact sheet distributed to reporters, HUD said that if it didn’t make the changes, it “would require an appropriation from Congress for FHA to endorse new reverse mortgages in FY 2018.”

The overall value of the insurance fund in fiscal 2016 was at at healthy $27.6 billion. The MMI’s capital ratio also increased to 2.32 percent, which is above the 2 percent minimum established by Congress. The fund has required only one bailout in its history, a $1.7 billion appropriation from the U.S. Treasury in fiscal 2013. This cash infusion was largely due to HECM losses, HUD said.

“Today, younger, lower-income homeowners with traditional FHA-insured ‘forward mortgages’ are routinely bailing out the HECM program through the mortgage insurance premiums they pay, placing a significant burden on the overall health of FHA’s Mutual Mortgage Insurance Fund,” the fact sheet said. “We can no longer tolerate putting American taxpayers and future generations of seniors at risk. Quite simply, the HECM program is losing money and can no longer remain viable in its present form.”

FHA insures almost all reverse mortgages, which are available to homeowners 62 and over. With a reverse mortgage, a homeowner can borrow against the value of a home. The loan doesn’t have to be repaid so long as the borrower remains in the home. A reverse mortgage carries fees, interest, and the borrower is required to pay property taxes and maintain the home.

The terms of a reverse mortgage depend on the amount of equity in the home, and the age of the borrower. Generally speaking, the younger the borrower, the less that can be borrowed and the higher the loan cost. The actual maximum loan limits are based on tables that factor in age and equity.

The reaction to HUD’s move was mixed.

The nation’s largest mortgage trade group, the Mortgage Bankers Association, praised the move as a way for the program to remain financially viable.

The National Reverse Mortgage Lenders Association (NRMLA) said the changes will increase the costs and reduce the benefits for most borrowers.

“We believe that there are alternative options for better managing the HECM program to reduce its overall costs and will continue to advocate for such beneficial changes to the program,” NRMLA President Peter Bell said. Bell did note that HUD’s action showed a commitment to the program and also to stabilizing the insurance fund and avoiding Treasury draws.

This story is excerpted from ScotsmanGuide.com.

Join Me to Support a Community Gem: The Rianda House

READY. SET. GIVE!

As we celebrate Older Americans Month, it is a perfect time for our Rianda House fundraiser, Rally4Rianda. This month, in particular, we take the opportunity to thank and recognize the enormous contributions our seniors have made to our nation — they’ve made it stronger through their experience, knowledge, and willingness to share with others. We are blessed to have them and to be able to learn from their wisdom.

I invite you to support the Rianda House with me. I firmly believe that taking care of our parents’ and grandparents’ generations is a core part of building our community. A donation of any size will help bring life to older adults right here at home.

Rianda House provides physical, social, and cultural activities and services for seniors that improve their lives. Last year, 876 older adults, ranging from 50 to 100 years young, participated in the Rianda House’s classes and activities, including:
•    Fit for Life exercise classes to maintain balance and strength.
•    Care Giver support groups and resources.
•    Life Long Learning, including art, current events, and brain-fitness classes.
•    Satellite health and wellness programming in Calistoga.
Consider giving this year through their Online Giving Campaign, which runs through May. Any size donation makes a difference and is 100% tax deductible.

“There is a fountain of youth: it is in your mind, your talents, the creativity you bring to your life and the lives of others.  When you tap into this source, you will truly have defeated age.”  — Sophia Loren

CLASSIC CARS | ART SHOW | CELEBRATION, SUNDAY, MAY 21

The highlight of the campaign is the 3rd Annual Rally4Rianda Classic Car & Art Show & Community Celebration.

Things get rolling with a “Cavalcade of Classic Cars” that starts at the Calistoga Gliderport at 10:30 am and proceeds south on Highway 29 to Tre Posti in St. Helena.

It’ll be a festive afternoon filled with beautiful classic, luxury, and concept cars; art; food; wine; Mad Fritz craft beer; and lively music by the St. Helena Community Band.

Sunday, May 21st | 12:00 – 3:00 pm
Tre Posti Event Garden
641 Main St., St. Helena

Admission is $5.00

Thank you for considering joining with me to support one of our community’s finest gems: the Rianda House.

 

—Cynthia Kee