What if you can’t afford long-term care?
As many as 8 in 10 older Americans couldn’t afford more than four years in an assisted living facility or two years in a nursing home, according to a 2023 analysis by the National Council on Aging and the LeadingAge LTSS Center @UMass Boston. Posted 9:34 a.m. Yesterday — Updated 8:38 a.m. Today By KATE ASHFORD of NerdWallet As many as 8 in 10 older Americans couldn’t afford more than four years in an assisted living facility or two years in a nursing home, according to a 2023 analysis by the National Council on Aging and the LeadingAge LTSS Center @UMass Boston. This is particularly hard for people in the monetary middle, defined by Pew Research Center as “those with an annual household income of about $52,000 to $156,000 annually in 2020 dollars for a household of three.” They don’t have enough to pay for long-term care, but they have too many assets to qualify for government assistance. Medicare also doesn’t cover long-term care. What are the options for the 47 million households with older adults who will face this scenario? From reverse mortgages to hybrid insurance policies, here are some avenues available to people who can’t afford the care they need. CONSIDER A REVERSE MORTGAGE If you have significant equity in your home and you’re at least 62 years old, a reverse mortgage can provide a helpful stream of income. A reverse mortgage is a loan or line of credit based on your home’s equity. You tap the equity now and pay the loan off when the home is sold. “What most people do, especially in a situation like a long-term care issue — once they’re out of the house, you sell it and use the proceeds to pay it off,” says Nicholas Bunio, a certified financial planner in Downingtown, Pennsylvania. A reverse mortgage has downsides — closing costs are expensive, similar to taking out a traditional mortgage, and you’ll leave less to heirs — but if you’re planning to receive home care or there’s a spouse still at home, it can be a solid option. (Once there’s no one living in the home for a year or more, the home must be sold to pay back the loan.) PRICE OUT INSURANCE If you have no major health issues, get quotes for long-term care insurance. Although experts recommend purchasing by age 65, you may be insurable up to age 79. Premiums can be pricey, but note that a semiprivate room in a nursing home costs more than $94,000 per year, according to the 2021 Cost of Care Survey by Genworth, an insurance company. “In many cases, long-term care insurance is a lot less expensive than the actual cost of care,” says Michelle Gessner, a certified financial planner in Houston. “So $1 of premium gives you multiple dollars of benefits, and that’s not the case with paying for it out of pocket.” Another option may be a permanent life insurance policy with a long-term care rider, often called a hybrid policy. Arrangements vary, but typically you can use some or all of your death benefit to pay for long-term care during your lifetime, and anything you don’t use will be paid to your estate when you die. “People complain that they’re expensive,” Gessner says, but she points out that nursing home care can cost $6,000 to $7,000 a month (or more). “What I tell people is just get what you can afford,” she says. “It’s not all or nothing.” LOOK INTO FACILITIES WITH BENEVOLENT FUNDS Some nursing homes or assisted living communities offer benevolent care, meaning they’ll take someone in who doesn’t have enough money to pay full freight or who can’t pay full price for long. When someone runs out of money, the benevolent fund covers the difference for as long as they need care. (They’ll typically collect Social Security and pension payments that may come in to help cover costs.) “They can be a good alternative for people who think they won’t have enough financial assets,” says Diane Pearson, a certified financial planner in Wexford, Pennsylvania. Benevolent care funds are often connected to faith-based communities. A search for faith-based facilities in your area might yield some options. ASK ABOUT A LIFE SETTLEMENT If you have a life insurance policy and you’re considering letting it lapse or taking the cash value from it, a life settlement may be the better option. In a life settlement, a third party buys your insurance policy, and you typically receive between 5% and 25% of the value of the death benefit. “There are investors out there who will basically make the premium payments on your behalf, but they keep the policy proceeds when you pass away,” says Christopher Lyman, a certified financial planner in Newtown, Pennsylvania. You might make this choice in a financial crisis. “The only reason you would do that is kind of like a last option,” he says. ___________________________________ This article was provided to The Associated Press by the personal finance website NerdWallet. Kate Ashford is a writer at NerdWallet. Email: kashford@nerdwallet.com. Twitter: @kateashford.
Bridging the Gap Between Living Expenses and Social Security Income with a Reverse Mortgage
Planning for and maintaining retirement can seem like a difficult task, especially when it comes down to the finances of it. Figuring out how to bridge an income gap between living expenses and Social Security is a common problem for: If this sounds like any of your clients, then let’s take a look at how a reverse mortgage can bridge this gap, and how it compares to some alternative solutions: Solution 1: Getting a Reverse Mortgage Nearly 80% of senior households own a home, making a reverse mortgage a very real option for bridging a gap between Social Security and expenses. Whether your client owns their home outright, or has a traditional mortgage on it, a reverse mortgage can be an asset in their retirement strategy. By using the equity in your client’s home, a reverse mortgage makes payments to the homeowner in the form of a lump sum, line of credit, monthly payments, or a combination. A big appeal of the reverse mortgage is that no mortgage payments are required;* the loan is typically paid back when the last borrower leaves the home or passes away. Additionally, one of the best features of a reverse mortgage is that it is a non-recourse loan, meaning it can only be paid back from the home and the borrower is not liable beyond the value of the home when the loan comes due. Typically, the loan is paid back through the sale of the home or refinancing the property into a traditional mortgage. *Borrower must pay property taxes, insurance, HOA fees and maintain the property. EXAMPLE In this illustration, not only does the current monthly mortgage payment of the traditional mortgage get eliminated, but the client also receives a certain amount from their line of credit on a monthly basis, over the specified period of time. By utilizing a reverse mortgage, the client bridges their income gap for those 8 years, is able to maximize their Social Security benefits, eliminates their required monthly mortgage payment,* and has access to a growing line of credit for future and emergency use. Example uses a 62-year-old client with a $800,000 home value, receiving a total principal limit of $271,200 based on an expected rate of 6.370% (11/9/22). See the estimated loan details here. *Borrower must pay property taxes, insurance, HOA fees and maintain the property. How a Reverse Mortgage Compares to Other Solutions Alternative Solution No. 1: Work part-time This option is fairly straightforward in how it can help bridge an income gap between expenses and Social Security: every hour worked means more income. Some seniors may find this appealing, especially as a way to “phase out” of work and into full retirement. However, if your client is considering working and wants to receive Social Security benefits, they need to be mindful of their full retirement age. If they are not yet at full retirement age and their income is more than the yearly earnings limit, then their Social Security benefit will be reduced. If your client is of full retirement age, then their benefits will not be reduced, regardless of the income they earn. Of course, if your client doesn’t want to work, then this isn’t a great option for them in their golden years. A reverse mortgage can get them the income they need without requiring them to work. If your client is keen on working, then this could even be an option alongside a reverse mortgage, providing two solutions to bridge the gap. Alternative Solution No. 2: Use savings Another option to bridge an income gap is to utilize savings. This can mean dipping into a regular savings account, an IRA or 401(k), or even a whole life insurance policy. When considering this approach, your client should be sure to think about what withdrawals will be taxable, if any fees will apply, and they should determine the timing and amounts that would be most suitable for them. When compared to a reverse mortgage, we start to see where this solution’s limitations are. For instance, the savings can be depleted before the person passes, whereas the funds from a reverse mortgage can be structure for a specific period of time (term) or for life (tenure). A savings account may not be as subject to the market conditions since you’ll always have the principal balance, whereas the unused portion of the line of credit can actually increase in value due to its growth rate. Income from some types of savings or retirement accounts may be taxable, whereas in general, income from a reverse mortgage is not. All clients should be advised to discuss their specific situation with their financial planner or advisor to ensure a reverse mortgage is the right financial solution. Alternative Solution No. 3: Deferred or immediate income annuity Finally, purchasing an income annuity1 can be a solution to bridging an income gap, however you may have to deplete the cash or savings you have on hand to purchase it. A specifically designed reverse mortgage, can also provide a guaranteed income stream for a desired time frame, regardless of the ever-changing market or economic landscape. With an immediate annuity, the person makes one lump-sum contribution that is converted to a steady income stream for the specified duration. A deferred annuity allows the person to make a lump-sum, or multiple contributions, during the accumulation phase and is then converted to an income stream during the specified duration. In contrast, most reverse mortgages do not require the borrower to pay into the loan, don’t require a monthly mortgage payment,* and the income stream can be set up to continue until the borrower passes via the tenure structure. Additionally, most income annuities do not give the person access to the principal, whereas with a reverse mortgage line of credit, any payments made to the loan balance increases the available funds. 1. Deferred Income Annuity contracts are irrevocable, have no cash surrender value and no withdrawals are permitted prior to the income start date. *Borrower must pay property taxes, insurance, HOA fees and
What Is A Home Equity Conversion Mortgage?
Updated: Jun 9, 2023, 2:14pm Getty A home equity conversion mortgage (HECM) is a reverse mortgage that enables seniors to access their home equity without selling their homes or making monthly mortgage payments. HECMs are the most popular type of reverse mortgage available. Nearly 65,000 senior homeowners took out a HECM from Oct. 1, 2021 through Sept. 30, 2022, according to the National Reverse Mortgage Lenders Association. How Do Home Equity Conversion Mortgages Work? Instead of gradually paying a lender back each month, all the money you borrow with a HECM is due when you move out of your house. That sum consists of the principal, interest and mortgage insurance—and closing costs if you finance them. Your move might be caused by your death, a need for assisted living or another reason. You can borrow the money as a: The lump sum has a fixed interest rate while the other options have a variable interest rate. Regardless of the option you choose, you can use your HECM proceeds however you want and continue to own your home. The amount you can borrow is based on three factors: Experts: Consider HECM Lines of Credit Like any mortgage product, HECMs come with notable risks, including being used to scam seniors out of their home equity. However, these loans also have a legitimate purpose and can be a good tool for borrowers who need to supplement their income during their retirement years. Some retirement planning experts have advocated for broader use of the HECM line of credit option. They say seniors should set one up as soon as they’re eligible. Even if you don’t need it now, the line of credit grows over time and can provide a diversified source of retirement income. For example, you could tap your home equity in years when you might otherwise have to sell investments at a loss to pay for living expenses or medical costs. You won’t pay interest unless you actually borrow money. But you’ll pay closing costs to set up the line of credit, whether you use it or not—which can be a deterrent. Who Is Eligible for a HECM Loan? You must meet these basic requirements to qualify for a HECM: How To Apply for a HECM Loan HECM loans are only available through reverse mortgage lenders approved by the Federal Housing Administration (FHA). You can find one through the FHA’s website or find lenders first, then check with the FHA to make sure they’re approved. If possible, it’s best to get preapproved or prequalify with multiple lenders to find the best offer before submitting an official application. Preapproval and prequalification have no impact on your credit score. The government has many requirements lenders have to follow when issuing HECMs. However, it doesn’t tell lenders what interest rate to charge. A lender with lower fees may charge a higher interest rate. Fees and other closing costs can vary by lender, although HECM lenders can’t charge more than $6,000 in origination fees. No matter which lender you choose, you can shop around for better prices on third-party closing costs, such as title insurance and closing services. You’ll also want to pay attention to how much and how often the interest rate can change if you apply for a HECM with a variable rate. HECM vs. Reverse Mortgage All HECMs are reverse mortgages, but not all reverse mortgages are HECMs. Some lenders offer their own proprietary reverse mortgages. HECMs are tightly regulated by HUD, with protections for both borrowers and lenders. All lenders must follow HUD’s rules. Proprietary reverse mortgages, on the other hand, have more lenient requirements, with more room for lenders to set their own parameters. Mortgage Insurance Premiums One of the most notable rules is that you’ll have to pay mortgage insurance premiums (MIPs) when you get a HECM. The upfront premium costs 2% of your home’s value (the maximum claim amount); ongoing premiums cost 0.5% of the outstanding loan balance each year. HECMs have a government guarantee that limits lenders’ losses if the borrower owes more than the home is worth when the mortgage is due. This guarantee also prevents borrowers and their heirs from having to make up any shortfall. As a result, all HECM borrowers must pay MIPs that go into the guarantee fund that helps make these loans possible. Proprietary reverse mortgages don’t have this mortgage insurance requirement. Age Requirements Another key difference is that you must be at least 62 years old to get a HECM. You may be able to get a proprietary reverse mortgage at a younger age, such as 55, depending on the lender and your state. Borrowing Limits A proprietary reverse mortgage also allows you to borrow far more—into the millions, depending on the lender and how much your home is worth. It can be a good option if you want to borrow more than HUD allows with a HECM, based on a maximum home value of $1,089,300 in 2023. HECM Alternatives A key reason for choosing a HECM is that you don’t meet the income or credit requirements to get another type of loan. But there are many other ways to use your home equity in retirement—and borrow without using your home as collateral. You don’t have to be working to qualify for a loan. You can get a mortgage after retirement (or get another type of loan) based on your retirement income, including Social Security, Supplemental Security Income, retirement account withdrawals, pension payments and more. A financial advisor can help you decide whether a HECM or an alternative option below may best meet your goals. By Amy Fontinelli
Is now a good time to tap into home equity?
Questions one should ask before getting a reverse mortgage Older homeowners aged 62 and older are sitting on a mountain of equity. Over $11 trillion dollars according to the National Reverse Mortgage Lenders Association’s Risk-Span Reverse Mortgage Market Index. With seniors awash in home equity is this a good time for older homeowners to tap into their home’s value? With home prices on average up 42% since the pandemic and the housing market showing signs of a reset or even a crash, the use of equity is a decision that should be approached with full consideration of the risks and benefits. What considerations should be weighed before tapping into one’s home with a reverse mortgage? Here are just a few, and as always, homeowners should seek the advice of a trusted professional and work with an experienced and skilled originator. Questions to ask before getting a reverse mortgage Will there be a future need for equity at the end of the reverse mortgage? If equity is needed to move into another home or obtain long-term care and that equity is the only means of paying those expenses, then a reverse mortgage may not be right the best choice. With most reverse mortgage borrowers not opting to make voluntary payments the loan’s balance increases each month with interest charged and insurance being added to each month’s balance. Is a move likely in the next 5 years? If a move is in the works or highly likely, then the costs of the reverse mortgage should be closely examined. The longer a homeowner lives with their reverse mortgage the lower their loan’s total annual costs would be since closing costs, upfront FHA insurance, and other fees are financed into the loan. 10 times when it may be a good time to get a reverse mortgage With home values at record highs and interest rates still below market norms, older homeowners should at least consider the benefits of a reverse mortgage before higher interest rates and lower home values may prevent them from qualifying for the loan. by Shannon Hicks August 22, 2022
Social Security Benefits Lose 36 Percent of Buying Power
An analysis of Social Security “cost of living adjustments” (COLAs) compared to the actual costs of goods and services purchased by older Americans found that Social Security benefits have lost 36 percent of their buying power since 2000. That’s according to a study released this month by The Senior Citizens League (TSCL). To put it in perspective, for every $100 a retired household spent on groceries in 2000, that household can only buy about $64 worth today. While this is an improvement from one year ago – when TSCL estimated that Social Security benefits had lost 40 percent of buying power over the same period – it’s still a significant number. Between January 2000 and February 2023, Social Security COLAs increased benefits by 78 percent, averaging 3.4 percent annually. But the cost of goods and services purchased by typical retirees rose by 141.4 percent, averaging about 6.2 percent annually. The TSCL is projecting the 2024 COLA to be around 3.1 percent. Below is a chart that shows the ten fastest-growing costs for items/services incurred by older Americans. by Darryl Hicks | May 11, 2023
Why a Reverse Mortgage is Not a Scam
Financial products are sometimes met with a degree of caution and skepticism. Although this can be a good thing, it can also lead to legitimate products being unfairly treated and painted as scams. This is the case for the reverse mortgage, a financial tool that allows homeowners who are 62 years or older** to convert part of their home equity into cash. So, what’s the deal? How do we know the reverse mortgage product is not a scam? In this article, we’ll explore the definition of a scam, how a reverse mortgage clearly does not fit that definition and the evolution of the reverse mortgage product. What’s a Scam? A scam can be defined as a fraudulent or deceptive plan for obtaining money or property, often through a false promise of future financial gain. Scams come in many shapes and sizes, from pyramid schemes to phishing to imposter scams. In general, scams are designed to prey on people’s trust, ignorance, or desperation. They promise high returns or other rewards, but in reality, they are just a way to separate people from their money. In contrast, a reverse mortgage is simply a mortgage loan with special features designed to benefit retirees. It allows seniors to access the equity in their home, while retaining the title to the property and living in the home. The loan amount is typically repaid when the last borrower moves out permanently, sells the home, or passes away.* It can also be partially or fully repaid at any time, with no pre-payment penalty. Reverse mortgages are non-recourse loans, meaning the borrower and their heirs will never owe more than the home’s market value at the time of repayment. Reverse Mortgages of the Past Reverse mortgages, like many mortgage products available in the 80s and 90s, did not have extensive consumer protections in place. When the federal government first introduced the reverse mortgage (Home Equity Conversion Mortgage) in the late 1980s, there were a small number of mortgage regulations, as well as several imitation products. The minimal regulation and presence of imitation products led people to believe that the product was a scam, when in fact, it was not. Present Day Reverse Mortgages Since then, many regulations and consumer safeguards have been implemented to make the reverse mortgage a sound financial decision for senior homeowners. The fees and costs associated with the loan have been standardized, the loan terms and disclosures are clear, and sales and marketing have stricter regulations. On top of that, borrowers are required to attend reverse mortgage counseling with an independent third-party HUD-approved counselor, to ensure that they thoroughly understand the loan. At Home For Life Reverse Mortgage, we pride ourselves on our transparency and integrity, as we seek to make reverse mortgages easier for our clients to understand. Summary As you can see, although the reverse mortgage has been criticized and viewed negatively by some, it has been adapted to better serve senior homeowners. As a result, it has become an important financial tool to assist older Americans who are looking for additional income sources or financial retirement options. *Borrower must pay property taxes, insurance, any HOA fees and maintain the property. Failure to meet loan requirements will cause the loan to become due and payable.**Age requirements can be 55 and older, depending on product and state.
The coming credit crunch
April 24, 2023 The credit crunch is coming. Soon older Americans may struggle to access credit and home equity loans. The fallout from the failure of Silicon Valley Bank remains with us today, despite a generous bailout courtesy of the U.S. government and the Federal Reserve. “When the banking stress first surfaced, my primary takeaway for U.S. equity markets was that it would lead to a credit crunch”, said Mike Wilson, Morgan Stanley’s chief U.S. equity strategist. In fact, the credit crunch is already begun and will leave many Americans unable to get access to numerous forms of credit from HELOCs, credit cards, and even mortgage loans. Wilson says, “The data suggests a credit crunch has started. And the data shows the “biggest two-week decline in lending by banks on record as they simultaneously sell mortgages and treasuries at a record pace to offset deposit flight”. Simply put, banks are looking to reduce their risk exposure amidst an uncertain economy that most expect will enter Read Less into a recession. It’s a somewhat self-fulfilling prophesy as many economists say a credit squeeze will significantly slow the economy. During Goldman Sachs Q1 2023 earnings call last Tuesday CEO David Soloman said, “The recent events in the banking sector are lowering growth expectations and there is a higher risk of a credit contraction given the environment is limiting banks’ appetites to extend credit”. Fortune reports that The International Association of Credit Portfolio Managers released their Credit Outlook Survey on April 13th. The survey reveals a majority of respondents anticipate higher loan defaults globally in the coming twelve months. 86% of survey respondents expect defaults to rise. Experts expect the biggest impacts of a worsening credit crunch will be felt on Main Street USA with community banks that have financed local commercial real estate tightening lending standards in anticipation of increasing CRE or commercial real estate loan defaults, especially for commercial loans that have floating interest rates. At a more granular level, older Americans may find themselves unable to obtain a home equity loan or may find their credit card limit has been reduced by the card-issuing bank. Such reductions in available credit card limits increase the cardholder’s credit card utilization ratio which in turns reduces their credit score due to no fault of their own. Such a scenario only makes loan qualification even more unlikely. However, there’s good news for older homeowners. While banks will be reducing the availability of credit, the federally-insured reverse mortgage or HECM, and presently private reverse mortgage loans offer a financial lifeline or increased cash flow for qualified borrowers. After nearly a decade of record-low interest rates and generous lending standards, the cash cow of credit will have far less to meet consumer demand. However, federally-insured reverse mortgage lending standards are not subject to national or regional bank lending standards but rather the guidelines set by the Federal Housing Administration. Outside of higher interest rates or a change to existing HECM principal limit factors, the HECM will remain a beacon of opportunity for qualified homeowners who may no longer get access to other loans. The credit crunch has begun and will accelerate this year. How will you let your local homeowners know that when one loan is declined a reverse mortgage may be obtainable? Sources cited:All signs are pointing to a credit crunch, says a top Wall Street strategist IACPM Outlook Survey by Shannon Hicks
5 Inflation-Busters for Older Homeowners
April 17, 2023 5 strategies older homeowners may use to curb the ravages of inflation. Many Americans feel we’re entering into an economic recession or already have. Our present state of affairs should come as no surprise. In essence, the bill has come due for years of money-printing and trillions in economic stimulus pumped into world economies, all in the effort to stave off the worst economic impacts of the Covid-19 pandemic. Today retirees find themselves stuck between a fixed income that’s being slowly consumed by a decline in purchasing power. Last week Yahoo Finance reported a survey revealing that 89% of Americans 60-75 believe there is a retirement savings crisis. American Advisors Group surveyed 1,500 individuals across the country whose respondents reported to be reducing their discretionary spending or in some instances, tapping into their home equity. The sad reality is even those who had saved enough to retire find themselves pinched by inflation which reached historic levels last year. While recent data shows the rate of inflation is slowing the Federal Reserve may be unable to keep a lid on rising costs. The Fed’s efforts to curb inflation would be undermined should several countries abandon the U.S. dollar as a world reserve asset pushing trillions of dollars back onto our shores. But back to what retirees may be able to control. Their cash flow. Increasingly older Americans on a fixed income are returning to the workforce according to a recent USA Today report. This retirement boomerang has lured many into the retail and service sectors. This became clear to me observing local app delivery drivers for Uber Eats or Door Dash are no longer predominantly millennials but include a significant number of individuals who appear to be over the age of 60. All this brings us to the question of how older Americans can survive this inflationary cycle. There is a myriad of options but here are just five to consider discussing with your potential borrowers. The first option, as we just mentioned, is to return to work. If their health allows this is a quick fix to a cash flow crunch. The second is to increase their withdrawals from their retirement savings. While this may solve an immediate need for cash it will significantly shorten the length of their sustainable withdrawals or how long that savings will last. The third choice is to take Social Security benefits sooner than later. While the delay of Social Security has been touted by many it’s an uncertain proposition. After all, no one knows if they’ll live long enough to enjoy their anticipated payouts. The Fourth is to cut discretionary spending. While this may help some weather today’s inflationary economy for most such cost-cutting falls short. The fifth option to protect one’s retirement savings is to tap into their home’s value with a reverse mortgage. While the loan is certainly a path to incurring an increasing debt its benefits are unique and often well-suited for those not concerned about leaving their home as a bequest to family members. Those who may be tempted to tap into their home equity with a HELOC may want to think again as the required payments will erase some of the cash flow benefit and perhaps most if not all of the cash flow generated when the loan fully amortizes to a higher monthly payment. No one likes to feel pushed into a corner yet that’s exactly where inflation has left many retirees. Discussing potential solutions to mitigate the worst effects of inflation empowers homeowners to make a fully informed decision, one that hopefully provides a long-lasting and bonafide benefit. By Shannon Hicks
Why seniors should consider a reverse mortgage.
Ideally, your retirement is a time of ease. You’ve set aside enough funds to live comfortably and enjoy well-earned rest. But things don’t always work out according to plan. For example, you may have built a solid retirement fund and a sudden big expense has caught you by surprise or you may not have been able to put away as much as you wanted. In these cases, you may need a way to cover the shortfall. Tapping into your home equity can be a cost-effective way to access much-needed funds. While the most common options are home equity loans, home equity lines of credit (HELOCS) seniors have an additional option: a reverse mortgage. Reverse mortgages are available to homeowners ages 62 and older who have nearly or entirely paid off their mortgages. They’re a unique kind of loan in which the lender pays you rather than the other way around. You can receive the proceeds as either a lump sum, line of credit or in the form of monthly payments, and you don’t need to pay the lender as long as you’re living in the home. If you’re looking for a source of cash in your retirement, read on to learn how a reverse mortgage can benefit you. 3 reasons seniors may consider a reverse mortgage. There are many reasons a reverse mortgage might be right for you if you’re a senior. Here are three of the big ones. You can use it for anything you want. There are no restrictions on what you can use your reverse mortgage funds for. You’re free to use them however you want, from providing supplemental income to paying for in-home care. This makes them a flexible funding source for a myriad of needs. It eliminates your monthly mortgage payment. Most loans require you to make monthly payments to repay the borrowed amount. Reverse mortgages are different. If you still owe money on your mortgage, you must first pay it off using your reverse mortgage funds. This can reduce the total amount you receive from the loan, but it also means you won’t have mortgage payments moving forward. Reverse mortgage payments aren’t due until you sell the house, move or die. Once this happens, you or your heirs must pay the amount back out of pocket or with the home’s sale proceeds. While you’re living in the home you won’t have to worry about making monthly mortgage payments. This can give you some extra breathing room in your budget. You won’t pay taxes on it. You do not owe taxes on the reverse mortgage funds. They’re essentially tax-free income. As a result, they won’t increase your income tax rate or interfere with your Social Security or Medicare benefits. However, you will need to continue to pay your property taxes (as well as home insurance). If you don’t, the lender may foreclose on your home. The bottom line While there are many advantages to getting a reverse mortgage, seniors should also be aware of potential drawbacks. For example, since reverse mortgages are secured by your home, you risk losing it if you’re unable to pay your property taxes or home insurance. They also come with closing costs and other fees. To decide if a reverse mortgage is right for you, carefully weigh the pros and cons. If you need additional guidance or have questions, please call me so I can help you. BY KELLY ERNST APRIL 7, 2023 / 4:25 PM / CBS NEWS
Benefits of a Reverse Mortgage Line of Credit
The line of credit feature of a reverse mortgage allows seniors to tap into the equity in their homes to receive cash as a lump sum and/or to draw from it as needed. This unique financing option offers several benefits for older homeowners who are looking for ways to supplement their retirement income, pay off debts, or simply enjoy their golden years in comfort. Here we’ll dive into some of the best benefits of a reverse mortgage line of credit. 1. Payment Optionality:No Required Monthly Mortgage Payments* One of the biggest benefits of a reverse mortgage line of credit is that there are no monthly mortgage payments required.* Seniors can borrow money as they need it, while not having to make payments on the balance until they move out, pass away, or sell the home. This makes it an excellent resource for seniors who are on a fixed income and want to maximize their retirement savings. 2. Access Funds When Needed & Only Accrue Interest on What’s Used Another advantage of a reverse mortgage line of credit is that borrowers have access to the funds whenever they need them and will only accrue interest on funds used. This means the line of credit can be used as a kind of savings safety net that gets utilized when unexpected expenses arise, such as medical bills or home repairs. This flexible access to funds allows your senior clients to live their life with less financial worry. 3. The Growth Factor:Unused Credit Increases Over Time Another benefit, unique to the reverse mortgage line of credit, is that any unused credit grows over time,1 increasing what is available to your clients. The unused credit grows at the same rate as the loan balance, which means not only can your borrowers have access to more funds, but they can be protected from falling home values. On top of all that, the growth factor, coupled with payment optionality, allows your clients to pay the loan balance down, at any time, in any amount, and receive a dollar-for-dollar credit back to their line of credit – so what they pay in will grow at that same rate. 4. No Repayment Until the Loan is Due With a reverse mortgage line of credit, borrowers don’t have to worry about repayment until a qualifying event occurs. A qualifying event can be if the borrower(s) fails to meet their obligations, such as paying property taxes and insurance or maintaining the property, as well as the last borrower passing away, selling the home, or no longer living in it as their primary residence. The loan is non-recourse, and upon it coming due, the estate/heirs have several options for repayment. These features can give your clients peace of mind, knowing that they can enjoy their retirement years without having the burden of loan payments, and without burdening their heirs. 5. Preserves Assets Finally, a reverse mortgage line of credit can help your clients preserve assets for their heirs. Opting to use the reverse line of credit as a savings bucket or safety net can allow borrowers to put other assets to work. They can leave money in retirement accounts or high-yield savings, move funds into alternative investments, and let their unused line of credit grow, all while having peace of mind that the line of credit is available to them, if or when a need arises. This can mean more growth across savings, which could turn into more of an inheritance for the heirs. Summary In conclusion, a reverse mortgage line of credit can offer a variety of benefits for seniors looking to supplement their retirement income or finance unexpected expenses. With payment optionality, borrowers can use the funds as needed without worrying about monthly mortgage payments.* Any unused credit grows over time, allowing borrowers to have access to more funds. The loan is non-recourse, and borrowers typically do not have to worry about repayment until they move out permanently, sell the home, or pass away, providing them with peace of mind. Additionally, a reverse mortgage line of credit can help borrowers preserve their assets for their heirs, making it a unique financing option that is worth considering for older homeowners. *Borrower must pay property taxes, insurance, any HOA fees and maintain the property.1Growth factor is not available on all reverse mortgage line of credits.