Join us for the first of a series of free information sessions FOR THE PUBLIC.
Social Security Benefits for 2009
Presented by Karen Risch, Field Representative
Reverse Mortgages in 2009
Presented by Ben D. Stucker, Director, Village Capital and Investment LLC
THURSDAY SEPTEMPER 24th, 2009 from 6pm to 7pm
At the Friends Home and Village, 331 Lower Dolington Road, Newtown, PA
Please R.S.V.P. to: Friends Home and Village (215) 968-9222
DOOR PRIZES too!
8/19/2009
Educational Event - Social Security Benefits / Reverse Mortgages in Bucks County, PA
8/12/2009
AARP Bulletin - Making Your House Work For You
AARP wrote about Reverse Mortgages in early 2008. Although AARP states that they do not support any specific lender or bank when it comes to reverse mortgages, it certainly seems as though AARP recognizes the positive side of this mortgage product.
http://bulletin.aarp.org/yourmoney/personalfinance/articles/making_your_house.html
One of the quotes from the article: "My father had had a stroke and did not want to go to a nursing home," explains an Asbury Park, N.J., resident who acted on behalf of his parents, both of whom are in their 70s. "We looked at every other option to allow them to stay in their house. The reverse mortgage was a lifesaver."
One note to add to this: People love to say that "Reverse Mortgages are expensive". I typically respond with "Compared to what?". Let's think about this....if you compare a reverse mortgage to a forward mortgage, you have to understand that they are not the same. One loan you make payments, the other you don't. One you must qualify for based on credit, income and employment while the other is just age! After these facts are presented suddenly a reverse is much more of a benefit than a cost!
http://bulletin.aarp.org/yourmoney/personalfinance/articles/making_your_house.html
One of the quotes from the article: "My father had had a stroke and did not want to go to a nursing home," explains an Asbury Park, N.J., resident who acted on behalf of his parents, both of whom are in their 70s. "We looked at every other option to allow them to stay in their house. The reverse mortgage was a lifesaver."
One note to add to this: People love to say that "Reverse Mortgages are expensive". I typically respond with "Compared to what?". Let's think about this....if you compare a reverse mortgage to a forward mortgage, you have to understand that they are not the same. One loan you make payments, the other you don't. One you must qualify for based on credit, income and employment while the other is just age! After these facts are presented suddenly a reverse is much more of a benefit than a cost!
Myths: Reverse Mortgages in Bucks County, PA
Misconceptions abound when it comes to Reverse Mortgages. Although understanding is increasing quickly amongst eligible seniors, there are over 10,000 people turning 62 each day that will need to get "caught up" on knowledge.
Myths:
1) The bank will take my house. With a reverse mortgage the borrower(s) retain title to the home similar to a forward mortgage. The borrower(s) can never be force out of their home as long as the property taxes, insurance are paid and the home is maintained to basic health and safety guidelines as defined by HUD.
2) The home must be owned free and clear. As long as the proceeds from a reverse mortgage cover any existing liens on the home (including 1st and 2nd mortgages, tax liens, and judgements), the candidate will qualify. According to a recent AARP and HUD co-sponsored study in 2008, approximately 50% of reverse mortgage borrowers used a reverse mortgage to pay off their existing mortgages and free up monthly cash flow.
3) The bank will sell my home when the loan becomes due. The borrower is always in control of the home and retains title (not the bank or the lender). It is most common for a family to sell the home because the adult children and families tend to be settled elsewhere - however, this is in no way a requirement. Many seniors plan for their estates to satisfy the reverse mortgage balance in the event that the children will be retaining the home while others PLAN for the home to cover the proceeds from the start.
4) It is cheaper to move to a smaller house. This strategy might be right for some, however, when factoring in real estate commissions, new closing costs and the cost of moving etc, it might not make as much sense as it initially appears. Individuals interested in downsizing, should speak with a realtor AND a mortgage professional about the options available to them and what the total costs would be prior to making a decision.
5) Children want the home and are not comfortable with a reverse mortgage. I encourage every senior to seek the advice of a PROPERLY EDUCATED or LICENSED individual. Due to the common misconceptions on the product, the "knee-jerk" reaction can be misplaced and misunderstood. I can speak for myself and many other adult children when I say "My mother and father DESERVE to live in their home and DESERVE to use it for all it is worth".
6) The borrower will owe more than the home is worth. Two of the great safeguards for reverse mortgage are that they are structured so that the borrower or his estate can never owe more than the value of the home upon repayment. In addition, HECM products are insured bu the FHA, an arm of the US Department of Housing and Urban Development.
7) Reverse Mortgage proceeds will impact Social Security and Medicare benefits. A reverse mortgage will not impact Social Security Retirement benefits or Medicare. They can impact some Federal Supplemental Security Income (SSI) or state-administered programs like Medicaid. I recommend that anyone looking in to a reverse with further questions on this contact the appropriate governmental agencies.
8) These are restrictions on how the money is used. Actually, there are no restrictions. The cash proceeds from the reverse mortgage can be used for any purpose. Paying off debts, paying medical expenses, helping their children and traveling are just some of the way proceeds can be spent.
9) Once the proceeds are received, taxes will need to be paid. Proceeds from a reverse mortgage are already your money...they are just in the form of equity. Since they are not income, you do not need to pay taxes on them. I suggest you contact a financial planner just to be certain.
10) Reverse Mortgages are only for seniors in need, or for the 'house rich & cash poor'. The reverse mortgage is an excellent financial planning tool when understood. I personally have closed reverse mortgages on homes as small as $90,000 to estates as large as $4,000,000. Using a reverse mortgage for estate planning and legacy planning in conjunction with advice from a financial planner can be a great strategy to increase overall estate value.
Myths:
1) The bank will take my house. With a reverse mortgage the borrower(s) retain title to the home similar to a forward mortgage. The borrower(s) can never be force out of their home as long as the property taxes, insurance are paid and the home is maintained to basic health and safety guidelines as defined by HUD.
2) The home must be owned free and clear. As long as the proceeds from a reverse mortgage cover any existing liens on the home (including 1st and 2nd mortgages, tax liens, and judgements), the candidate will qualify. According to a recent AARP and HUD co-sponsored study in 2008, approximately 50% of reverse mortgage borrowers used a reverse mortgage to pay off their existing mortgages and free up monthly cash flow.
3) The bank will sell my home when the loan becomes due. The borrower is always in control of the home and retains title (not the bank or the lender). It is most common for a family to sell the home because the adult children and families tend to be settled elsewhere - however, this is in no way a requirement. Many seniors plan for their estates to satisfy the reverse mortgage balance in the event that the children will be retaining the home while others PLAN for the home to cover the proceeds from the start.
4) It is cheaper to move to a smaller house. This strategy might be right for some, however, when factoring in real estate commissions, new closing costs and the cost of moving etc, it might not make as much sense as it initially appears. Individuals interested in downsizing, should speak with a realtor AND a mortgage professional about the options available to them and what the total costs would be prior to making a decision.
5) Children want the home and are not comfortable with a reverse mortgage. I encourage every senior to seek the advice of a PROPERLY EDUCATED or LICENSED individual. Due to the common misconceptions on the product, the "knee-jerk" reaction can be misplaced and misunderstood. I can speak for myself and many other adult children when I say "My mother and father DESERVE to live in their home and DESERVE to use it for all it is worth".
6) The borrower will owe more than the home is worth. Two of the great safeguards for reverse mortgage are that they are structured so that the borrower or his estate can never owe more than the value of the home upon repayment. In addition, HECM products are insured bu the FHA, an arm of the US Department of Housing and Urban Development.
7) Reverse Mortgage proceeds will impact Social Security and Medicare benefits. A reverse mortgage will not impact Social Security Retirement benefits or Medicare. They can impact some Federal Supplemental Security Income (SSI) or state-administered programs like Medicaid. I recommend that anyone looking in to a reverse with further questions on this contact the appropriate governmental agencies.
8) These are restrictions on how the money is used. Actually, there are no restrictions. The cash proceeds from the reverse mortgage can be used for any purpose. Paying off debts, paying medical expenses, helping their children and traveling are just some of the way proceeds can be spent.
9) Once the proceeds are received, taxes will need to be paid. Proceeds from a reverse mortgage are already your money...they are just in the form of equity. Since they are not income, you do not need to pay taxes on them. I suggest you contact a financial planner just to be certain.
10) Reverse Mortgages are only for seniors in need, or for the 'house rich & cash poor'. The reverse mortgage is an excellent financial planning tool when understood. I personally have closed reverse mortgages on homes as small as $90,000 to estates as large as $4,000,000. Using a reverse mortgage for estate planning and legacy planning in conjunction with advice from a financial planner can be a great strategy to increase overall estate value.
8/10/2009
Reverse Mortgages to pay Medicare Hospital Deductibles
If you know of a Senior who cannot obtain a MediGap policy to cover some of the super high Medicare deductibles or other coverage to help with prescriptions - it might make sense for them to consider a reverse mortgage.
Reverse mortgages can come in a fixed rate format (currently 5.56%). They can be predictable and safe - but knowledge is the key.
Learn, then decide - you will be shocked by the amount of false information going around.
Reverse mortgages can come in a fixed rate format (currently 5.56%). They can be predictable and safe - but knowledge is the key.
Learn, then decide - you will be shocked by the amount of false information going around.
8/09/2009
Seniors Comfortable on the Web
http://www.healthcareitnews.com/news/survey-finds-seniors-satisfied-using-internet-manage-health
When speaking about those surveyed (all of which were over 65).....
"The biggest surprise from the survey was discovering that the typical Kaiser Permanente Medicare beneficiary who is registered to use My Health Manager is very comfortable with computers, using the Internet daily and reviewing their medical record online a few times each month,"
When speaking about those surveyed (all of which were over 65).....
"The biggest surprise from the survey was discovering that the typical Kaiser Permanente Medicare beneficiary who is registered to use My Health Manager is very comfortable with computers, using the Internet daily and reviewing their medical record online a few times each month,"
8/07/2009
Useful Eldercare Blog
Home Care, Elder Care and other related issues are covered in this Blog: http://jmoskovitz.wordpress.com/
8/06/2009
Response to "Reverse Mortgages Get More Attractive"
"Reverse Mortgages Get More Attractive" was the title of an article written by Mike Wolfstein of TheStreet.com in December of 2008. In the article, he mentions that a reverse mortgage can be "expensive". Additionally, he goes on to give a few details which do not truly identify the options available to homeowners. See below for my response to his article - which I only found this morning when I was searching for the newest content to share.
Here is the article he wrote: http://www.thestreet.com/story/10451930/3/reverse-mortgages-get-more-attractive.html
Here is my email to him: Hello and thank you for taking the time to write on reverse mortgages. I would like to provide some feedback to your article. I hope it will shed some light on this product as I write this response with the best of intentions.
First, I believe that it is unfair to call these loans "expensive" as there is no basis for comparison UNLESS an older American also qualifies for a conventional loan, FHA forward mortgage or HELOC. They are all mortgage products however they are designed for completely different scenarios and cannot be compared as side-by-side options.
I believe it is more correct to state that there are higher insurance costs associated with a reverse mortgage due to the fact that the insurance is based on the home value, not the initial loan amount (which is the case in forward mortgages). Although it is not relevant to the consumer, it is important to also include the fact that this fee (2% of the appraised value or $625,500 whichever is lower) is for insurance and ultimately provides safety for the homeowner that the mortgage will never exceed the sales price of the home.
- Regarding upfront fees: In a reverse mortgage, the entire amount of money needed to close a loan is captured in one fee named the origination fee. This includes all lender costs such as underwriting, processing etc...they are all lumped in. In a forward (or conventional or FHA) loan, the "up front" fees can be split into numerous fees depending on the state but commonly: underwriting, processing, warehouse, lender fee, credit report, tax certification, flood certification, origination, discount. When the total of these fees on a forward mortgage are compared to the only fee allowed on a reverse mortgage (the origination fee), there is most likely little or no difference. Certainly it will almost always be the case that the origination fee on a forward mortgage will always be lower as that is only one of many fees. Finally, title fees will be the same on a forward as compared to a reverse.
Regarding selling a home as an option: Selling a home and moving into a rental community or an independent living facility should not be an equal alternative in my opinion. In the event that a homeowner were to obtain a reverse mortgage and take the TENURE option (which allows for monthly payments for the remainder of their life - regardless of the length), they will no longer have any mortgage payments and will never run out of monthly income as a result of the reverse mortgage - as the payments are guaranteed for life. They are also guaranteed to remain in their home (barring some major event such as acute illness or injury).
In the event that an older American decides to sell their home they have made a major change in their housing plan. Within a residential rental community, there is a monthly rent due each month. This will continue for as long as that individual is in a community. In the event that the assets of that renter (previously a homeowner) are depleted for any reason, they will be left in a situation where they will not have funds for housing. This major event - being stuck without a home - will never happen to an individual who obtained a reverse mortgage.
Last point: Reducing the long term negative impact of a reverse mortgage. There are several things in this world which are black and white - either you do or you don't. In my opinion, reverse mortgages do not need to always be "don't pay your mortgage" loan. Here is a great example:
The current fixed rate my bank is offering on a reverse mortgage is 5.56%. There is a decent chance that this rate is lower than most of the people out there with mortgages that have not been refinanced very recently. Just yesterday I was speaking with a homeowner that still had a 7.125% rate. These individuals can refinance the loan into the lower fixed rate (through a reverse mortgage) without needing to provide good credit, income or assets. As long as they were paying monthly, they would be better off and they would also have, if the need arises, the ability to stop paying or provide partial payments at some point and time.
When a reverse mortgage is obtained, the homeowner IS allowed to make payments against the principal balance which is accruing at a rate of 5.56%. Since there is no payment schedule they can decide to pay as much as they like or as little as they like. So, a homeowner could elect to take a TENURE option and then, in the event they have what they need that month, return the funds to the bank to be put back into the available credit. This will enable them to stay "legally broke" and still get benefits offered by Medicaid* and also greatly decrease the speed at which funds accrue.
In the above examples I have simplified a few things, however, they are options for many people and it is really unfortunate that the product is complex and cannot be understood easily by homeowners. I find that keeping it simple is always best when working with homeowners; however, it is my duty to provide all options and discuss things like this with them so they have all the options.
As the Director of Senior Lending at Village Capital and Investment LLC (we are a direct endorsement FHA lender) I support any discussion regarding reverse mortgages as the more that people know the better off they are - usually. I typically tell people that even if they think a reverse mortgage is not the right option for them, they should first make an educated decision based on the facts from a properly licensed professional in the reverse mortgage industry. I also always encourage them to include family as it is important for them to know the impact to the estate if any. I find that statements such as "they are expensive" could keep people from making the proper decision and that is troubling to me.
*Check with a Medicaid advisor.
Here is the article he wrote: http://www.thestreet.com/story/10451930/3/reverse-mortgages-get-more-attractive.html
Here is my email to him: Hello and thank you for taking the time to write on reverse mortgages. I would like to provide some feedback to your article. I hope it will shed some light on this product as I write this response with the best of intentions.
First, I believe that it is unfair to call these loans "expensive" as there is no basis for comparison UNLESS an older American also qualifies for a conventional loan, FHA forward mortgage or HELOC. They are all mortgage products however they are designed for completely different scenarios and cannot be compared as side-by-side options.
I believe it is more correct to state that there are higher insurance costs associated with a reverse mortgage due to the fact that the insurance is based on the home value, not the initial loan amount (which is the case in forward mortgages). Although it is not relevant to the consumer, it is important to also include the fact that this fee (2% of the appraised value or $625,500 whichever is lower) is for insurance and ultimately provides safety for the homeowner that the mortgage will never exceed the sales price of the home.
- Regarding upfront fees: In a reverse mortgage, the entire amount of money needed to close a loan is captured in one fee named the origination fee. This includes all lender costs such as underwriting, processing etc...they are all lumped in. In a forward (or conventional or FHA) loan, the "up front" fees can be split into numerous fees depending on the state but commonly: underwriting, processing, warehouse, lender fee, credit report, tax certification, flood certification, origination, discount. When the total of these fees on a forward mortgage are compared to the only fee allowed on a reverse mortgage (the origination fee), there is most likely little or no difference. Certainly it will almost always be the case that the origination fee on a forward mortgage will always be lower as that is only one of many fees. Finally, title fees will be the same on a forward as compared to a reverse.
Regarding selling a home as an option: Selling a home and moving into a rental community or an independent living facility should not be an equal alternative in my opinion. In the event that a homeowner were to obtain a reverse mortgage and take the TENURE option (which allows for monthly payments for the remainder of their life - regardless of the length), they will no longer have any mortgage payments and will never run out of monthly income as a result of the reverse mortgage - as the payments are guaranteed for life. They are also guaranteed to remain in their home (barring some major event such as acute illness or injury).
In the event that an older American decides to sell their home they have made a major change in their housing plan. Within a residential rental community, there is a monthly rent due each month. This will continue for as long as that individual is in a community. In the event that the assets of that renter (previously a homeowner) are depleted for any reason, they will be left in a situation where they will not have funds for housing. This major event - being stuck without a home - will never happen to an individual who obtained a reverse mortgage.
Last point: Reducing the long term negative impact of a reverse mortgage. There are several things in this world which are black and white - either you do or you don't. In my opinion, reverse mortgages do not need to always be "don't pay your mortgage" loan. Here is a great example:
The current fixed rate my bank is offering on a reverse mortgage is 5.56%. There is a decent chance that this rate is lower than most of the people out there with mortgages that have not been refinanced very recently. Just yesterday I was speaking with a homeowner that still had a 7.125% rate. These individuals can refinance the loan into the lower fixed rate (through a reverse mortgage) without needing to provide good credit, income or assets. As long as they were paying monthly, they would be better off and they would also have, if the need arises, the ability to stop paying or provide partial payments at some point and time.
When a reverse mortgage is obtained, the homeowner IS allowed to make payments against the principal balance which is accruing at a rate of 5.56%. Since there is no payment schedule they can decide to pay as much as they like or as little as they like. So, a homeowner could elect to take a TENURE option and then, in the event they have what they need that month, return the funds to the bank to be put back into the available credit. This will enable them to stay "legally broke" and still get benefits offered by Medicaid* and also greatly decrease the speed at which funds accrue.
In the above examples I have simplified a few things, however, they are options for many people and it is really unfortunate that the product is complex and cannot be understood easily by homeowners. I find that keeping it simple is always best when working with homeowners; however, it is my duty to provide all options and discuss things like this with them so they have all the options.
As the Director of Senior Lending at Village Capital and Investment LLC (we are a direct endorsement FHA lender) I support any discussion regarding reverse mortgages as the more that people know the better off they are - usually. I typically tell people that even if they think a reverse mortgage is not the right option for them, they should first make an educated decision based on the facts from a properly licensed professional in the reverse mortgage industry. I also always encourage them to include family as it is important for them to know the impact to the estate if any. I find that statements such as "they are expensive" could keep people from making the proper decision and that is troubling to me.
*Check with a Medicaid advisor.
Maintaining equity and getting monthly proceeds from a Reverse Mortgage
One of the most common fears of those people I speak to regarding a reverse mortgage is that they will, at some point in time, be "done" using the available equity in their home. This could be true at some point in time, however I would like to include one recent closing which took place and the home owner's strategy to be sure she will have money to use for the remainder of her life. For her privacy, we'll call the homeowner Deb.
Deb's home is worth $260,000. Her outstanding mortgages (she had two) were equal to $62,000 and she was paying $740 on each monthly. She is 72 and qualified for a loan amount of $149,620.
What did Deb do? Deb payed off her two mortgages saving her $740 each month. She also elected to receive $400 additional per month for the remainder of her life in the home (even if she lives to exceed 110 years old!)
Increased Cash Flow: Deb is no longer paying her mortgage for $740 and receives $400 from the benefit of the reverse mortgage. She is $1140 POSITIVE each month from her reverse mortgage transaction. She can now travel, socialize and make gifts to her family and friends which tied into her estate planning.
Her equity position in her home is still increasing!
Deb's home is worth $260,000. Her outstanding mortgages (she had two) were equal to $62,000 and she was paying $740 on each monthly. She is 72 and qualified for a loan amount of $149,620.
What did Deb do? Deb payed off her two mortgages saving her $740 each month. She also elected to receive $400 additional per month for the remainder of her life in the home (even if she lives to exceed 110 years old!)
Increased Cash Flow: Deb is no longer paying her mortgage for $740 and receives $400 from the benefit of the reverse mortgage. She is $1140 POSITIVE each month from her reverse mortgage transaction. She can now travel, socialize and make gifts to her family and friends which tied into her estate planning.
Her equity position in her home is still increasing!
- The day that Deb takes the reverse mortgage, she will have $166,600 in home equity available (accounting for realtor commissions) if she were to sell her home.
- 10 years later, when Deb is 82, she will have $199,100 in home equity available (accounting for realtor commissions) if she were to sell her home.
- At 100 years old, Deb will have $330,000 in home equity available (accounting for realtor commissions) is she were to sell her home.
So there you have: Obtaining a Reverse Mortgage does not mean that you will always have a decreasing equity position!
8/05/2009
Second Home Purchases using a Reverse Mortgage
While there are many downsides to the recent real estate market "adjustment", there is a silver lining for those individuals over 62 who are looking to purchase a second home AND also qualify for a reverse mortgage on their primary residence. Here's why....
If you were to utilize cash from your primary residence (via a reverse mortgage) to purchase your new vacation home, you will have obtained a new home without a new mortgage payment. Moreover, since you now own a vacation home free and clear (the mortgage would have been on your primary residence) your ability to "earn money" via appreciating real estate is still intact. Considering the fact that reverse mortgages offer fixed rates in the 5% range currently, this option is very attractive to many recent retirees looking to "live the good life".
Here is a summary of what you get when you obtain a reverse mortgage on your primary residence to purchase a vacation home:
If you were to utilize cash from your primary residence (via a reverse mortgage) to purchase your new vacation home, you will have obtained a new home without a new mortgage payment. Moreover, since you now own a vacation home free and clear (the mortgage would have been on your primary residence) your ability to "earn money" via appreciating real estate is still intact. Considering the fact that reverse mortgages offer fixed rates in the 5% range currently, this option is very attractive to many recent retirees looking to "live the good life".
Here is a summary of what you get when you obtain a reverse mortgage on your primary residence to purchase a vacation home:
- A vacation home
- A consistent equity position in property that you own - you have only transferred equity from your primary residence to your vacation home.
Here is a summary of what you DON'T get when you obtain a reverse mortgage on your primary residence to purchase a vacation home:
- A new mortgage payment
- The problems associated with taking on a new debt or qualifying for a new loan.
If you have dreamed of owning your own beach house, lake house, ski chalet or trailer in the mountains and you are lucky enough to qualify for a reverse mortgage, this could be the way to go. Happy fishing and enjoy your free vacation home!
Reverse Mortgages to the Rescue
The cover of YAHOO FINANCE featured an article today (8/5/2009) on Reverse Mortgages. The article was written by Mary Beth Franklin and was made available via Kiplinger.com.
One quote from the article sums up the current Reverse Mortgage Market:
The link to the article: http://finance.yahoo.com/focus-retirement/article/107465/reverse-mortgages-to-the-rescue.html?mod=fidelity-livingretirement
Full Aricle Content:
New reverse-mortgage rules let you squeeze more cash from your house and even buy a new home.
Reverse mortgages have been around for nearly 20 years, but it wasn’t until the current financial crisis that they caught on. Seniors are turning to these loans to tap the equity in their homes and generate tax-free income to help them ride out hard times.
For Frank and Carol Rider, a reverse mortgage is providing a cushion, giving their investments time to recover from the bear market. The Riders, both in their early seventies, borrowed about $200,000 against their home in New Mexico. They used the money to pay off their traditional mortgage and to take $1,500 a month for the next 20 years to supplement their pensions and Social Security benefits. “We’re trying to maintain our lifestyle,” says Frank, noting that he and Carol travel extensively year-round.
For Luther and Peggy Combs, their reverse mortgage is a lifeline that saved their home from foreclosure. The Combses, both in their early sixties, had high hopes for a comfortable life when they moved from Chicago to central Florida a few years ago. But Luther lost his job when the economy soured, and the couple found themselves deeply in debt. Although they had to use every penny of their home equity to pay off their bills, the reverse mortgage wiped out their monthly house payments and made it easier for them to sleep at night.
You Can Take It With You
A reverse mortgage can be a good option for people who want to relocate or move to a smaller home but who don’t want to sink all their cash into a new house or who may not qualify for a traditional mortgage. In the past, the only way they could take out a reverse mortgage was to stay put. But new rules that took effect in January allow seniors to use a reverse mortgage to buy a new home. Say you own a house in Massachusetts worth $500,000 and you want to buy a $400,000 house in Florida. If you were to sell your house and pay cash for your new home, you’d have just $100,000 left to add to your savings. But now you can take out a reverse mortgage on the new home. For example, if you took a $100,000 reverse mortgage on the Florida house, you’d have twice the amount left--$200,000—to add to your savings.
How It Works
You must be at least age 62 to take out a reverse mortgage. Plus, your house (current or future) must be your primary residence, and your mortgage must be either paid off or have a small balance. Unlike a traditional loan, there are no income or credit-score requirements, and you may use the money as you wish. The older you are, the higher the appraised value of your home (up to the maximum federal loan limit) and the lower the interest rate, the greater the amount you can borrow. As part of the economic-stimulus package, Congress raised the reverse-mortgage loan limit to $625,500 through the end of 2009. After that, the lending limit reverts to $417,000, unless Congress intervenes. As a rough rule of thumb, a 65-year-old might be able to borrow up to 35% of a home’s value, says Eric Bachman, founder of Golden Gateway Financial, a reverse-mortgage lender in Oakland, Cal. The percentage rises to 45% for a 75-year-old, and 55% for an 85-year-old.
You can take your payment as a lump sum, a monthly cash payout, a line of credit held in reserve or a combination of all three. No repayment is due until the last homeowner moves out or dies, at which point the home can be sold to pay off the debt. The loan repayment can never exceed the home’s market value (even if it declines), absolving your heirs of any liability.
High Fees
Your personal “bailout plan” won’t come cheap. You’ll pay the usual closing costs, plus loan-servicing fees, an origination fee of up to $6,000 and interest over the life of the loan. But what makes a reverse mortgage really costly is an initial insurance premium equal to 2% of the home’s value (up to the reverse-mortgage loan limit) plus 0.5% per month of the mortgage balance. (The Federal Housing Administration insurance protects you and the lender if your home value declines and ensures that you won’t owe money if the loan balance exceeds the home’s value.)
On a $200,000 loan, the upfront costs could exceed $20,000, says Jeff Lewis, chairman of Generation Mortgage, in Atlanta. So a reverse mortgage makes sense only if you plan to stay in your house for several years. But if you do, now could be a golden opportunity for owners of high-priced homes. Interest rates are at historic lows and loan limits may never be as generous, boosting potential payouts. And, says Lewis, “Once you lock in a reverse mortgage, declining home values don’t matter.”
Copyrighted, Kiplinger Washington Editors, Inc
One quote from the article sums up the current Reverse Mortgage Market:
"....now could be a golden opportunity for owners of high-priced homes. Interest rates are at historic lows and loan limits may never be as generous, boosting potential payouts."
The link to the article: http://finance.yahoo.com/focus-retirement/article/107465/reverse-mortgages-to-the-rescue.html?mod=fidelity-livingretirement
Full Aricle Content:
New reverse-mortgage rules let you squeeze more cash from your house and even buy a new home.
Reverse mortgages have been around for nearly 20 years, but it wasn’t until the current financial crisis that they caught on. Seniors are turning to these loans to tap the equity in their homes and generate tax-free income to help them ride out hard times.
For Frank and Carol Rider, a reverse mortgage is providing a cushion, giving their investments time to recover from the bear market. The Riders, both in their early seventies, borrowed about $200,000 against their home in New Mexico. They used the money to pay off their traditional mortgage and to take $1,500 a month for the next 20 years to supplement their pensions and Social Security benefits. “We’re trying to maintain our lifestyle,” says Frank, noting that he and Carol travel extensively year-round.
For Luther and Peggy Combs, their reverse mortgage is a lifeline that saved their home from foreclosure. The Combses, both in their early sixties, had high hopes for a comfortable life when they moved from Chicago to central Florida a few years ago. But Luther lost his job when the economy soured, and the couple found themselves deeply in debt. Although they had to use every penny of their home equity to pay off their bills, the reverse mortgage wiped out their monthly house payments and made it easier for them to sleep at night.
You Can Take It With You
A reverse mortgage can be a good option for people who want to relocate or move to a smaller home but who don’t want to sink all their cash into a new house or who may not qualify for a traditional mortgage. In the past, the only way they could take out a reverse mortgage was to stay put. But new rules that took effect in January allow seniors to use a reverse mortgage to buy a new home. Say you own a house in Massachusetts worth $500,000 and you want to buy a $400,000 house in Florida. If you were to sell your house and pay cash for your new home, you’d have just $100,000 left to add to your savings. But now you can take out a reverse mortgage on the new home. For example, if you took a $100,000 reverse mortgage on the Florida house, you’d have twice the amount left--$200,000—to add to your savings.
How It Works
You must be at least age 62 to take out a reverse mortgage. Plus, your house (current or future) must be your primary residence, and your mortgage must be either paid off or have a small balance. Unlike a traditional loan, there are no income or credit-score requirements, and you may use the money as you wish. The older you are, the higher the appraised value of your home (up to the maximum federal loan limit) and the lower the interest rate, the greater the amount you can borrow. As part of the economic-stimulus package, Congress raised the reverse-mortgage loan limit to $625,500 through the end of 2009. After that, the lending limit reverts to $417,000, unless Congress intervenes. As a rough rule of thumb, a 65-year-old might be able to borrow up to 35% of a home’s value, says Eric Bachman, founder of Golden Gateway Financial, a reverse-mortgage lender in Oakland, Cal. The percentage rises to 45% for a 75-year-old, and 55% for an 85-year-old.
You can take your payment as a lump sum, a monthly cash payout, a line of credit held in reserve or a combination of all three. No repayment is due until the last homeowner moves out or dies, at which point the home can be sold to pay off the debt. The loan repayment can never exceed the home’s market value (even if it declines), absolving your heirs of any liability.
High Fees
Your personal “bailout plan” won’t come cheap. You’ll pay the usual closing costs, plus loan-servicing fees, an origination fee of up to $6,000 and interest over the life of the loan. But what makes a reverse mortgage really costly is an initial insurance premium equal to 2% of the home’s value (up to the reverse-mortgage loan limit) plus 0.5% per month of the mortgage balance. (The Federal Housing Administration insurance protects you and the lender if your home value declines and ensures that you won’t owe money if the loan balance exceeds the home’s value.)
On a $200,000 loan, the upfront costs could exceed $20,000, says Jeff Lewis, chairman of Generation Mortgage, in Atlanta. So a reverse mortgage makes sense only if you plan to stay in your house for several years. But if you do, now could be a golden opportunity for owners of high-priced homes. Interest rates are at historic lows and loan limits may never be as generous, boosting potential payouts. And, says Lewis, “Once you lock in a reverse mortgage, declining home values don’t matter.”
Copyrighted, Kiplinger Washington Editors, Inc
8/04/2009
Variable Rates - Reverse Mortgages in PA
While many homeowners enjoy the flexibility of withdrawing funds as needed from the proceeds of a reverse mortgage, it is important to understand the good and the "other" associated with this option. First, it is important to understand that under this option, the rate at which interest accrues each month will grow depending on a variable rate. This rate is made up of two numbers. As of today, the lender will have a margin they add to an index number such as the monthly LIBOR. A typical start rate today (including FHAs Mortgage insurance percentage) can be between 3.75% and 4.5%.
Here is what you need to be aware of when you obtain a monthly variable reverse mortgage (which would be used if you obtained a Line of Credit option).
Here is what you need to be aware of when you obtain a monthly variable reverse mortgage (which would be used if you obtained a Line of Credit option).
- The rate cap, meaning the maximum that the interest rate can go up to, can typically get as high as 10% above the start rate. This means that if your rate to start was 3.75%, it can get as high as 13.75%.
- These rates can move quickly as they adjust monthly. Most people are used to conventional mortgages which historically have adjusted only yearly.
Now, there are things which are great about this particular option as well.
- Most beneficial to this particular option is the fact that interest will only accrue on the funds which you have used thus far. The remaining/unused principal balance will not accrue interest.
- A second great feature of the variable rate is that the unused portion of the credit line will grow over time. The current rate of this growth (as of Aug 2009) is 4.1%. This means that is you obtained a reverse mortgage and have a $100,000 credit line available and you do not use it for an entire year, next year you will have $104,100 available. This is a great feature because as time goes on it allows you to make the most of your reverse proceeds and should also track closely with home value appreciation.
In closing, it is important to consider one last item: Total Principal Limit. Without using too much industry jargon, it is generally always the case that the fixed rate reverse mortgage will offer a much larger initial principal limit - that is, the amount of cash which can be taken out of the home. It must not be forgotten however that a line of credit will grow over time and thus the total benefit after all funds are exhausted on a variable rate could end up being significantly higher depending on the time between the loan being taken and the complete use of the funds.
In my next post I will put together some examples of how a line of credit reverse mortgage can allow a user to maintain a strong equity position in their home, but also allow for yearly or monthly distributions from the equity....a match made in heaven!
8/02/2009
The Importance of Estate Planning
Since April of 2009 I have been taking a course to receive a "Certified Senior Advisor" designation ("CSA"). The course consists of 25 hours of video, 740+ pages of reading and several tests - all in preparation for the final exam which is graded as pass or fail. If you pass, you are then awarded the designation of becoming a Certified Senior Advisor.
I initially thought the course would "lightly pepper" information so that a professional in the senior industry could have a general understanding of the issues facing older adults and their families. In reality, each topic is discussed in detail over at least 40 pages (which are in tiny print). The material is quite dense and goes into significant detail including numerous case studies and real world examples. This particular course includes social, medial, physical, mental, religious, financial and legal issues surrounding the process of aging. Just some of unique topics include being able to identify situations where elder abuse might be occurring to understanding the responsibilities of a geriatric care manager.
The most recent chapter I read on Estate Planning was startling. If you are reading this BLOG, and you care about your children or their children getting the most of what you spent your lifetime earning, it is essential that you contact a properly licensed estate attorney to be certain that your estate is protected. Most people (including me prior to reading this specific chapter) think that a Last Will and Testament would suffice in managing any estate issues after death. That could not be further from the truth.
While a Will can lay out the general game plan as to distribution of assets, the tax implications associated with not properly planning for the details (which could involve trusts and other transfer vehicles) to distribute assets etc would almost literally cost a fortune and should never be ignored. I can't image anything worse than dealing with the loss of a loved one and then realizing that most of everything they worked for their entire lives is being transferred to the government (via taxes) vs. their heirs. This is especially true since there are estate attorneys available in just about every town that can help with the proper set up of an estate to remove as much tax liability as possible.
The top two reasons why seniors are not taking the proper steps towards protecting their estates are: 1) History has taught them to not speak about money and 2) Talking about "after death" issues when they are alive is not easy. The second reason here is especially true when you consider that an adult child of a senior asking questions about estates and inheritance could be perceived as asking "when are you going to die" even though the conversation is mean to assist in end of life planning.
In today's complicated and disastrously taxable estate transfer world, these issues must be overcome. The reality is that there are easy ways to avoid some of the devastating tax implications, but it is up to the senior and their adult children to realistically look at their current situation and speak about the issues as a matter of family business. I am sure it is important to the senior that there is some type of inheritance or legacy passed on - and in many cases a brief conversation with a properly specialized attorney can make all the difference.
As my friend in the Long Term Care Insurance business always says, "It is better to be 10 years too early than a day late".
If you need assistance in finding a qualified Estate Attorney, please contact me and I would be happy to provide you with a few names within your community as well as a few whom I have come to trust and work with over the years.
I initially thought the course would "lightly pepper" information so that a professional in the senior industry could have a general understanding of the issues facing older adults and their families. In reality, each topic is discussed in detail over at least 40 pages (which are in tiny print). The material is quite dense and goes into significant detail including numerous case studies and real world examples. This particular course includes social, medial, physical, mental, religious, financial and legal issues surrounding the process of aging. Just some of unique topics include being able to identify situations where elder abuse might be occurring to understanding the responsibilities of a geriatric care manager.
The most recent chapter I read on Estate Planning was startling. If you are reading this BLOG, and you care about your children or their children getting the most of what you spent your lifetime earning, it is essential that you contact a properly licensed estate attorney to be certain that your estate is protected. Most people (including me prior to reading this specific chapter) think that a Last Will and Testament would suffice in managing any estate issues after death. That could not be further from the truth.
While a Will can lay out the general game plan as to distribution of assets, the tax implications associated with not properly planning for the details (which could involve trusts and other transfer vehicles) to distribute assets etc would almost literally cost a fortune and should never be ignored. I can't image anything worse than dealing with the loss of a loved one and then realizing that most of everything they worked for their entire lives is being transferred to the government (via taxes) vs. their heirs. This is especially true since there are estate attorneys available in just about every town that can help with the proper set up of an estate to remove as much tax liability as possible.
The top two reasons why seniors are not taking the proper steps towards protecting their estates are: 1) History has taught them to not speak about money and 2) Talking about "after death" issues when they are alive is not easy. The second reason here is especially true when you consider that an adult child of a senior asking questions about estates and inheritance could be perceived as asking "when are you going to die" even though the conversation is mean to assist in end of life planning.
In today's complicated and disastrously taxable estate transfer world, these issues must be overcome. The reality is that there are easy ways to avoid some of the devastating tax implications, but it is up to the senior and their adult children to realistically look at their current situation and speak about the issues as a matter of family business. I am sure it is important to the senior that there is some type of inheritance or legacy passed on - and in many cases a brief conversation with a properly specialized attorney can make all the difference.
As my friend in the Long Term Care Insurance business always says, "It is better to be 10 years too early than a day late".
If you need assistance in finding a qualified Estate Attorney, please contact me and I would be happy to provide you with a few names within your community as well as a few whom I have come to trust and work with over the years.
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