Practical advice on becoming your parents financial guardian
Our parents looked after us, protected us, and taught us everything we needed to navigate our lives into adulthood. It’s the kind, compassionate and loving thing to do for them when it’s clear they need our help. Though the conversation may be uncomfortable – no one wants to hear that they may not be as sharp as they once were – it’s still one that we owe to them. It’s also important to remember that they are still your parents and deserve to be afforded the same respect and dignity as you’d always shown, no matter how diminished their capacity. Read on for some pointers from Home For Life Reverse Mortgage. Some Signs It May Be Time to Take Charge Keeping an Eye on Your Parent Installing a smart camera in your parent’s home can be a prudent measure if you’re concerned about their ability to manage their affairs independently. This technology offers a discreet way to monitor their daily activities and behaviors, helping you ensure their safety and well-being from afar. It can alert you to any unusual or concerning patterns that might indicate a need for intervention or assistance. To make the most of this setup, it’s important to keep troubleshooting resources handy. This ensures that any technical issues can be swiftly resolved, maintaining a seamless connection to your loved one’s environment. By integrating smart technology responsibly, you can provide support and peace of mind for both you and your parents. Evaluating Assisted Living Options Evaluating local assisted facilities becomes a crucial step when your parent can no longer live independently. This process involves more than just touring facilities; it requires a deep dive into the experiences and feedback from those who have first-hand experience with these communities. Consulting facility reports is essential to understand the level of care, compliance with regulations, and overall quality of the environment. Equally important is reading tenant reviews, which offer invaluable insights into the daily life, staff responsiveness, and the community’s atmosphere from the perspective of residents or their families. These resources combined will provide a comprehensive view, helping you make an informed decision about the best place for your parents to thrive in this new chapter of their life. Your Parents Should Provide These as Early as Possible Downsizing Downsizing to a smaller, more manageable home is a great option for those who do not want to move into assisted living. Start by using this calculator to determine the value of your parent’s current home. You can also arrange for your parents to transfer ownership of their home to you so that you can handle the sale yourself. You’ll also want to have your parent’s new, smaller residence already selected so that you can complete the move as seamlessly and painlessly as possible. A search of local rentals can provide you with a good basis for exploring your options. It’s a good idea to hire professional movers to streamline the process, as well. If Your Parent Is a Business Owner If you don’t want to take over the running of your parent’s business, Synergy Business Brokers notes that you may have to sell it for them once they’re no longer able to manage it. There are different requirements depending on if they are the sole business owner or if they have partners. Or, if the business is a sole proprietorship, an LLC, or a multi-member LLC. First, you’ll need a complete valuation of business, its assets, including real estate and inventory, and debts. You will need access to all the company’s documents like business tax returns, customer and vendor contracts, and building and equipment leases. You’ll want to have an attorney to help with the dissolution of business, but you can save yourself a lot of billable hours by gathering as many documents as you can prior to the formal sale. It can be a relief to both you and your parents, knowing they no longer have to be responsible for their finances. They are free to enjoy the things they are able to do, and you are free to enjoy your time with them without constant worry. It’s what you would want someone to do for you when the time’s come. To learn more about how a reverse mortgage can help you meet your financial needs, visit Home For Life Reverse Mortgage today! By Lisa Gonzalez elderscorp.org
3 moves seniors should consider with inflation still high
With a report released earlier in April showing inflation rising yet again and the prospect of interest rate cuts low for the Federal Reserve’s next meeting, many Americans may find themselves looking for ways to boost their bottom line. This is particularly true for seniors, many of whom may be heavily reliant upon Social Security and retirement savings. For this demographic, in particular, it’s important to explore alternative ways to both protect their existing money — and improve their potential income flow. Fortunately, there are multiple ways to accomplish both goals right now. Below, we’ll break down three moves seniors should consider with inflation still high. 3 moves seniors should consider with inflation still high Here are some moves seniors should investigate as they continue to cope with the high cost of inflation. Invest in gold Gold has historically been a smart and effective way to hedge against inflation and diversify your portfolio, two features that make the precious metal particularly attractive right now. Gold can help offset the negative influence of inflation thanks to a value that tends to remain steady or even rise during such economic periods. And that’s been the case in recent weeks as the price of the metal has surged to record highs. But the diversification it can offer is also key, particularly for seniors with portfolios largely made up of volatile stocks and bonds. In this case, gold can help balance the performance of those assets, offering another layer of protection that’s especially valuable now. Consider a reverse mortgage If inflation and higher borrowing costs have dramatically affected your available cash, homeowners 62 and older should consider turning to a reverse mortgage. This loan, based on your home’s appraised value at the time of application, will only need to be paid back if you sell the property or die. And, while it may not be ideal to tap into your existing equity, particularly if you were planning on leaving it to loved ones following your death, it’s still preferential to going further into debt. For many seniors, it can be a smart way to supplement limited retirement income right now. Review bank accounts The inflation rate last month was 3.5%. The average interest rate on a regular savings account right now is 0.46%. So if you’re keeping your funds in a regular account, you’re losing money and not keeping pace with inflation. As such, it’s important to periodically review your bank accounts for opportunities to further grow your savings. High-yield savings accounts, for example, operate the same way regular savings accounts do, but with an exponentially higher interest rate (up to 6% for some accounts right now). Certificates of deposit (CDs), meanwhile, may come with even higher rates, although they will require savers to lock their money away for an extended period of time. Either account option, however, is generally preferable to the minimal rate you’re likely earning with a regular account now. The bottom line While high inflation and elevated interest rates can be problematic for seniors, there are ways to effectively offset some of the negative ramifications. By investing in gold, for example, seniors can better hedge against inflation and diversify their portfolios. Reverse mortgages, meantime, offer an alternative income source with less baggage than other home equity borrowing options do. And by opening high interest-earning accounts like high-yield savings and CD accounts now, savers can earn significant sums of money simply by switching their savings strategies. As is the case with all financial decisions, however, it’s critical to carefully consider each of these moves in order to improve the chances of financial success. By Matt Richardson
Unlock Your Home Equity: Modern Reverse Mortgages for Retirement Planning
Not just for emergencies anymore, in this series our expert explores how reverse mortgages can boost your retirement income and financial security. Remember that iconic marketing campaign from the 70s that proclaimed orange juice “isn’t just for breakfast anymore?” Well, reverse mortgages are experiencing a similar renaissance! The journey began in 1961 when Nelson Haynes of Deering Savings & Loan in Portland, Maine, pioneered the first reverse mortgage for Nellie Young. This innovative loan aimed to support the widowed wife of his high school football coach, allowing her to stay in her home after her husband’s passing. Fast forward to the 2020s, and the reverse mortgage landscape has undergone a significant transformation. Consider the retired CEO with $5 million in savings and a $4.5 million home. He leveraged a reverse mortgage to establish a multi-million-dollar tax-free wealth transfer strategy. This approach not only protects his existing assets from premature erosion but also safeguards his heirs’ inheritance without impacting his current cash flow. The evolution is remarkable. Reverse mortgages have shifted from being merely a financial lifeline for the “house-rich, cash-poor” widow to a versatile equity release strategy with diverse applications. As a consumer or investor doing your own research on reverse mortgages, the coming months will be crucial for uncovering the full potential of this tool. We’ll dive deep into the strategic uses of modern reverse mortgages for retirement income planning, illustrating their varied applications and demonstrating their value in a comprehensive retirement strategy. This series will equip you with the knowledge to determine how a reverse mortgage could enhance your financial planning and provide peace of mind in your retirement years. Understanding Reverse Mortgages Leveraging home equity in retirement is a well-established concept. For decades, reverse mortgages have been used as a solution for retirees whose savings might not fully cover their longevity. Today, around twenty countries, including the United States, provide various forms of senior equity release programs, commonly known as reverse mortgages. Particularly in the U.S., where an impressive 87% of retirees own their homes, these financial tools have become an increasingly viable option for tapping into this substantial asset to enhance financial security during retirement. At their core, reverse mortgages help homeowners aged 62 and above convert a portion of their home equity into accessible funds. With the introduction of jumbo reverse mortgage programs, homeowners with higher home values can also benefit, starting at age 55. Eligibility typically includes most single-family homes, specific multi-unit properties, some condominiums, and certain manufactured homes, while cooperative apartments remain excluded. The amount of available funds hinges on various factors, including your age, home value, existing property balances, current interest rates, and chosen product terms. Repayment is initiated when the last borrower permanently leaves the residence; whether due to passing away, relocating, or selling the home. At this juncture, borrowers or heirs have the option to repay the loan and accrued interest or sell the home to settle the debt. Any remaining equity after settling the loan remains with the borrower or heirs. A significant advantage of reverse mortgages is the absence of monthly mortgage payments. Unlike traditional mortgages, borrowers are not obligated to make monthly payments, thereby freeing up cash flow for other expenses. Moreover, borrowers enjoy flexibility in accessing funds. They can choose a lump sum, a line of credit, or a combination of both, providing them with access to funds as needed. Crucially, borrowers retain ownership of their home and can continue living there for as long as they wish, as long as they meet program requirements such as paying property-related charges like taxes, insurance, and HOA fees. Today’s Reverse Mortgage Transition Today’s reverse mortgages have broadened their appeal, providing flexibility and financial benefits that speak to the needs of a wider array of retirees and homeowners. This change marks a substantial shift in the reverse mortgage landscape, transitioning from a niche resource to a widely adopted tool among retirees globally. This evolution is fueled by three pivotal changes: shifts in borrower profiles, growing public acceptance, and proactive utilization. Let’s explore the key changes that have shaped the modern reverse mortgage landscape. Borrower Profiles One of the most notable shifts has been in the borrower profile evolution. Economic shifts, generational changes, and shifts in retirement planning have broadened the typical reverse mortgage borrower profile. “Constrained Borrowers,” faced with limited retirement savings, view reverse mortgages as a lifeline to maintain their standard of living. “Concerned Borrowers” seek stability and security to address unexpected expenses like medical bills or long-term care needs. “Cautious Borrowers,” despite having existing retirement plans, explore reverse mortgages to strengthen their financial safety net. “Comfortable Borrowers” leverage reverse mortgages to optimize their retirement income, freeing up cash for travel, hobbies, or supporting loved ones. Lastly, “Carefree Borrowers,” though financially stable, may still use a reverse mortgage for tax benefits or estate planning advantages. Public and Academic Acceptance of Reverse Mortgages The perception of reverse mortgages has shifted dramatically from skepticism to broad acceptance, positioning them as a reputable component of retirement planning. This change is largely due to endorsements from prominent financial experts and rigorous academic research, enhancing their credibility. Expert Endorsements: Respected financial experts such as Dr. Wade Pfau, Ed Slott, Tom Hegna, and Dr. Harold Evensky have publicly supported the use of reverse mortgages. Their endorsements focus on how these tools can enhance retirement income planning and provide effective risk management solutions, lending significant weight to the growing acceptance of reverse mortgages. Academic Research and Integration: Leading academic institutions, including The American College of Financial Services, MIT, and Texas Tech University, have not only studied reverse mortgages but have also incorporated them into their financial planning curricula. This integration into academic settings highlights the strategic importance of reverse mortgages in managing retirement finances. Insights from Research Publications: The value of reverse mortgages is further underscored by research featured in respected academic journals. These publications highlight the strategic benefits and versatility of reverse mortgages, particularly in the realm of retirement planning. Notable examples include “Standby Reverse Mortgages:
How a Reverse Mortgage Can Be Used to Purchase a Home
Reverse mortgages have traditionally been used as a way for older homeowners to access the equity in their home and receive regular payments, either as a lump sum, tenure or term payment, or through a line of credit, all without having to sell their property or make monthly mortgage payments.* But what if your client wants to sell their home and purchase a new one? Can a reverse mortgage be used for that? In short, yes, but let’s take a deeper look into how a reverse mortgage can be used to purchase a home. The Reverse Mortgage Purchase Process In a reverse mortgage purchase, the homeowner can use the proceeds from the sale of their existing home for the down payment on the new home. This, coupled with the reverse mortgage, can cover the purchase cost of the new home, allowing the borrower to keep more funds on hand. Plus, the borrower gets all the usual benefits of a reverse mortgage, including no required monthly mortgage payment.* With a reverse mortgage for purchase, selling the existing property and buying a new home can be done simultaneously. This type of reverse mortgage can be an attractive option for seniors who want to right-size or relocate and want to maintain a healthy cash flow. Qualifying for a Reverse Mortgage for Purchase To qualify for a reverse mortgage for purchase, there are some important considerations to keep in mind. Firstly, the homeowner must have sufficient equity in their current home or liquid assets to pay off any outstanding mortgage debt and provide a down payment for the new home. Secondly, the new home must meet the requirements for a reverse mortgage, including being the borrower’s primary residence, meeting FHA or product specific guidelines, and being an eligible property, such as a single-family home or approved condominium. Additionally, the borrower must meet the reverse mortgage requirements, including being age eligible and meeting a financial assessment. Conclusion In conclusion, a reverse mortgage can be used to purchase a home and can be a good option for senior homeowners who are interested in rightsizing or relocating. It can help them keep money in savings by using the sale proceeds as a down payment and letting the reverse mortgage cover the rest of the purchase. It comes with the same benefits that a reverse mortgage typically has, including being a non-recourse loan and having no required monthly mortgage payment.* A reverse mortgage for purchase takes some additional planning and consideration to ensure it is the right fit for the borrower, but it can be well worth it in the end. We recommend your clients speak with their financial advisor or reverse mortgage specialist to help them determine if it is the best option for their particular situation.
Senior debt is climbing while inflation accelerates. Is there a way out?
Older Americans are caught in the toxic mix of inflation and increasing debt. Americans have more debt than ever before which is especially dangerous for older Americans living on a fixed income. Today individual debt levels and credit delinquencies are approach pre-recession levels similar to those seen before the Great Financial Crisis and Recession of 2008. Relief in the form of lower interest rates is increasingly unlikely as the March Consumer Price Index (CPI) report shows the rate of persistent (not transitory) inflation is accelerating. The Federal Reserve still has a long way to go before they feel compelled to cut interest rates- that is unless the economy slips into a recession. Today we will examine the economic headwinds that have resulted in higher rates and increasing pressure on Americans- especially seniors. Inflation and higher interest rates are a toxic mix that is pushing more Americans into financial jeopardy as many purchase increasingly expensive everyday purchases on credit. March’s inflation report released last week came in at its highest level since December. The annual rate of inflation grew to 3.5% in March- well above the central bank’s target of 2 percent. This may lead Federal Reserve Governors to grab their erasers for any planned rate cuts later this year or even consider increasing the Fed Funds Rate. “If we continue to see inflation moving sideways, it would make me question whether we needed to do those rate cuts at all,” said Minneapolis Federal Reserve Bank President Neel Kashkari. Earlier this month Federal Reserve Governor Michelle Bowman told attendees at the Shadow Open Market Committee in New York, “While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further should progress on inflation stall or even reverse”. Presently, these hawkish viewpoints are in the minority but that could change. In his letter to shareholders JPMorgan Chase CEO Jamie Dimon the bank should prepare for rates as high as eight percent or even more. Dimon notes the government’s deficit spending is is effect acting as an economic stimulus- a policy that undermines the Fed’s efforts to curb inflation. So how are American’s coping with today’s higher prices? It’s likely with their credit cards. Federal Reserve data shows that delinquency rates for consumer debt are climbing fast approaching the levels seen in the years leading up to the 2008 recession. Does this mean we’re on the cusp of a recession? Not necessarily but the correlation is interesting. What is certain is if interest rates are increased delinquency rates would worsen. When it comes to debt held by Americans aged 65-75 MarketWatch reports the following averages for 2022. The average mortgage balance was $175,670, installment loans 28,690, car loans $23,690, and an average credit card balance of $7,720. Those numbers are likely even higher today and will continue to trend upward. Case and point. The pre-tax income for Americans between the ages of 65-74 only increased 4.6% from 2019-2022 while inflation increased by 13% during the same period. Overall credit card balances have surged 47% over the last three years and nearly half or 46% report they are carrying credit card debt over month-to-month. All which points to the increasing pressure older Americans living on a fixed income in retirement are facing. Contact me to see how a Reverse mortgage can help you if you are facing financial challenges.
Most Older Investors Say Retiring at Age 65 Is No Longer Feasible
Most investors approaching their retirement years say that a traditional retirement won’t be possible for them. That’s according to a survey of 2,000 investors polled in January by Nationwide Mutual’s retirement research institute, which found that a majority of investors between 55 and 65 years old said they won’t be able to stop working at 65. Most also said they expect to face more challenges in retirement than past generations. Rethinking retirement Traditionally, 65 is the target age for retirement, but that’s becoming an increasingly ambitious goal for the average American. People are living a lot longer nowadays, and with the cost of living increasing, workers are struggling to save enough to comfortably live out their golden years. That’s becoming a major problem in a landscape where personal savings have all but replaced employer-run pensions, which provide guaranteed lifetime income. More than half of U.S. adults overall are concerned they won’t be able to achieve financial security in retirement, according to a report published this year by the National Institute on Retirement Security. Even pre-retiree investors with at least $10,000 in assets are worried. Nearly 70% of these investors between 55 and 65 said retiring at 65 isn’t realistic for them, according to the Nationwide Mutual survey. A similar share (67%) said they expect to face more challenges in retirement than previous generations. The pre-retiree investors weren’t very confident about their future Social Security benefits, either. More than a quarter said they expect to receive less Social Security income than previously expected. “Many of us watched our parents and grandparents enjoy a smooth transition to a secure retirement powered by traditional pension benefits,” Eric Henderson, president of Nationwide Annuity, said in a news release. “Today’s investors are having a tougher time picturing that for themselves as they grapple with inflation and concerns about running out of money in retirement.” Change of (retirement) plans As a result of the mounting obstacles to a secure retirement, more than 40% of the pre-retiree investors polled said they would keep working in retirement out of necessity. They also reported that their retirement plans have changed within the past year, with 22% saying they now expect to retire later than planned. That tracks with 2023 research from Pew Research Center, which found that that 19% of Americans 65 and older were participating in the workforce compared to 11% a few decades ago. A September study from investment management firm T. Rowe Price similarly found that 20% of retirees have returned to work either full- or part-time. That’s not all older adults are doing to pad their retirement income, though. More than a quarter of the pre-retiree investors polled by Nationwide said they plan to live frugally to bankroll their retirement goals, with 41% reporting that they’re avoiding nonessentials like vacations, jewelry and shopping sprees to save more. A Reverse Mortgage from Home for Life Reverse Mortgage, Inc. may be able to help you retire more comfortably. Contact us for more information.
The best times to get a reverse mortgage.
According to the latest Consumer Price Index report, inflation once again ticked upward in March. Persistent inflation makes it challenging for Americans to manage their expenses, and that’s especially true for seniors who are no longer in the workforce or are living on fixed incomes. On top of that, elevated interest rates, combined with limited retirement income, make it harder for seniors to qualify for home equity loans and other forms of financing to ease their burden. In this environment, many seniors are turning to alternatives, such as reverse mortgages, to borrow money. A reverse mortgage can help qualified homeowners convert some of their home’s equity into much-needed cash to pay off debt or live more financially secure in retirement. While reverse mortgages aren’t for everybody, they can be beneficial in certain situations. Let’s examine a few of the best times to consider getting a reverse mortgage. When you don’t have enough income to pay your bills Many seniors have significant equity in their homes after paying down their mortgage over time, especially if home values have increased. Unfortunately, many of these same seniors struggle to meet monthly expenses. A reverse mortgage is tailored precisely for situations like this, It eliminates the requirement of monthly mortgage payments, offering borrowers potential cash returns or a line of credit based on their equity. The best part is you do not have to make any monthly payments, and you will never owe the lender more than the value of your home. You pay off the reverse mortgage on the home when you sell or through your estate when you pass. When your home equity is greater than your loan balance A qualified homeowner can use proceeds from a reverse mortgage for several reasons, such as: You can even use a reverse mortgage to pay off your home loan. When a borrower closes on their reverse mortgage, the first thing that happens is any existing mortgages are paid off. The borrower can then access any remaining equity. The equity can be disbursed in a lump sum or regular monthly payments. The borrower may choose to establish a line of credit or choose a combination of any of these disbursement types based on their financial goals and needs. When you don’t have beneficiaries A reverse mortgage may be a better option for seniors to tap into home equity for their financial needs if they don’t have beneficiaries. In this case, they don’t have to consider beneficiaries’ interests or preserve the home’s value for an inheritance. A senior without beneficiaries will not have to worry about planning who will pay off the reverse mortgage after they pass as if you inherit a property with a reverse mortgage, it is your responsibility to pay it back. When a reverse mortgage may not be a good idea While these mortgages can benefit seniors in a variety of ways, it’s critical to understand the downsides of reverse mortgages before proceeding with one. Everyone’s financial situation is unique, after all, and a reverse mortgage may not be suitable for all situations. A reverse mortgage may not be ideal if you can’t keep up with ongoing homeownership costs. While you’re not usually required to make monthly payments on your reverse mortgage, you do have to properly maintain your home and pay property taxes, homeowners association dues and other property-related expenses. Failing to do so or living away from the home for 12 months or longer could cause the lender to foreclose on your property. The bottom line Taking out a mortgage is a serious decision, so it’s crucial to consider the benefits and downsides before getting a reverse mortgage. You might consider consulting your financial advisor or tax accountant to make sure a reverse mortgage aligns with your overall financial plan and goals. However, a reverse mortgage may be a good option in certain situations because it allows you to access your home’s equity as cash to reduce strain on your budget and achieve a more financially stable retirement. By Tim Maxwell
Are reverse mortgages expensive? Compared to what?
Besides the myths, misconceptions, and media misrepresentations of reverse mortgages, one of the most common criticisms of the loan is that they’re too expensive. To be fair, the federally insured Home Equity Conversion Mortgage (HECM) certainly has substantial upfront costs, most significantly the Upfront FHA Mortgage Insurance Premium (UMIP). The maximum upfront FHA premium for an HECM could be as high as $22,996.50 for a home appraised at $1,149,825 (the current HECM limit) or higher. The real question is “HECMs are expensive compared to what?” A recent article from the online Canadian media outlet The Globe and Mail entitled Retirees in debt have found an expensive way to get relief grabbed my attention. This article is accurate and fair, but it does bring to mind the need for a discussion of the upfront and ongoing costs of reverse mortgages compared to the unique benefits the loan can provide. The real question is that HECMs are expensive compared to what? To answer this question let’s examine the costs or consequences of being cash flow constrained in retirement. Below are just a few examples. The Consequences of lacking cash flow in retirement Avoiding medical appointments or foregoing medications risking a more serious disease or condition. The emotional toll of financial distress can lead to depression, hopelessness, or in some cases even suicide. The inability to keep up with inflation where Social Security or other retirement accounts fall short. Becoming a financial burden on adult children who step in to help an aging parent meet their living expenses. Shortening the lifespan of retirement account balances by taking larger systematic withdrawals to meet expenses. Falling behind on property taxes (with an existing traditional mortgage) and risking foreclosure. Being unable to pay homeowners’ insurance premiums and risking potential foreclosure from the lender. Having to work far beyond your intended retirement age. Being unable to afford to travel to see children, grandchildren, or close friends. The lack of funds to make needed repairs and maintain the home reduces the property’s value. Having to drive an unreliable vehicle. Being unable to purchase healthful food instead buying more affordable but less nutritious food items. Being saddled with an ongoing mortgage payment only to pass the home onto children who may squander the money they inherit. A generally lower quality of life. Certainly, reverse mortgages are not a panacea for every older homeowner, but their upfront and ongoing costs are buying something intangible- peace of mind. The calculus of one’s desired quality of life in retirement compared to the costs inherent in a reverse mortgage should be the centerpiece of the decision-making process. For some, the question is (as one reverse mortgage professional aptly said) ‘What’s your Plan B?’ by Shannon Hicks
Are you looking for ways to increase your cash flow in retirement?
If you own your home (or most of it), a reverse mortgage may be able to help. It can eliminate your existing mortgage payment and generate a regular source of income. However, there are a few factors that might deter you. That’s why it’s beneficial to fully understand how reverse mortgages work. Here’s a closer look at reverse mortgages, the pros and cons, and when one might be a good idea. What is required for a reverse mortgage? Most reverse mortgages are Home Equity Conversion Mortgages (HECMs) backed by the Federal Housing Administration (FHA) and originated by FHA-approved lenders. To qualify, you’ll need to meet a few requirements, including: How is a reverse mortgage repaid? Unlike traditional mortgages, reverse mortgages don’t have regularly scheduled payments. The full outstanding balance is due when certain events occur, including if you: In most cases, reverse mortgages are paid off by selling the home or handing the title over to the lender. However, the balance can also be refinanced or paid off by other means (e.g. savings, inheritance, etc.). What can a reverse mortgage be used for? You can use the funds you receive from a reverse mortgage for any purpose, such as to buy groceries, make home improvements, or pay bills. Retirees typically use them to supplement their Social Security and other retirement income. If you could use the extra cash that a reverse mortgage frees up then it’s worth exploring your options. What does it cost to apply for a reverse mortgage? Most lenders won’t charge you to apply for a reverse mortgage. However, be prepared to pay the fees for your mandatory counseling session and your home appraisal. Additionally, if you get approved and decide to move forward, you’ll have to pay closing costs and may be charged origination fees, service fees, and more. How much can you borrow with a reverse mortgage? The amount you can borrow, also known as the net principal amount, is based on your age, home value, interest rate, and borrower costs. When you apply, your lender will calculate it for you. Reverse mortgage pros and cons While a reverse mortgage can provide various benefits, it also has a few potential drawbacks. Here’s a summary of the pros and cons. Pros Cons Is a reverse mortgage right for you? Whether a reverse mortgage is right for you or not will depend on a few factors. First, consider how long you plan to stay in the home. If you don’t intend on moving, a reverse mortgage can be a good fit. However, if you do want to move in the future, your outstanding balance will become due which may require you to sell the house. Additionally, if you want to pass your home on to an heir, a reverse mortgage will make that more difficult. They’ll need to pay off or refinance the outstanding loan balance at the time of your passing. Other critical factors to consider are the costs to get the reverse mortgage and if the loan will impact your government benefits. While a helpful loan product in some situations, reverse mortgages are specific to the individual homeowner’s personal financial situation and preferences. Be sure to weigh the pros and cons carefully and share any concerns you have during your mandatory counseling session. Consider cash-out refinancing, too If you think you may benefit from a reverse mortgage then it helps to be aware of cash-out refinancing, too. Once familiar with both options you can weigh the pros and cons to accurately determine which is better for you. With a cash-out refinance you take out a new mortgage loan for an amount larger than your existing loan. You then use the new one to pay off the old one. You receive the balance (the difference between your old and new mortgage) as cash. Most lenders will allow owners to take out up to 80% of their home’s value so, depending on how much of your loan you’ve paid off, you could potentially get hundreds of thousands of dollars back. You can use those funds as you see fit. If this sounds like something you could benefit from then reach out to us today and we can answer any questions you may have and help guide you toward a plan that works for you.
Why a reverse mortgage may be worth it for seniors right now
It’s never too late to explore ways to make extra money. With so many ways to make passive income and multiple side jobs, it can be simple to make additional income. For seniors, however, many of whom rely upon a tight budget made of savings and Social Security, their extra cash options may be limited. Fortunately, there is a safe and reliable method to explore: reverse mortgages. Seniors aged 62 and older who have paid down all or most of their mortgage can leverage their existing homes by having a lender pay them (instead of the opposite, hence the “reverse” title). This can take the form of monthly payments or it can come in one lump sum. By using this accumulated home equity, seniors can easily supplement their income — and they will only have to pay the money back when they sell their home or die. And right now may be a particularly opportune time to pursue this option. Below, we’ll break down three reasons why a reverse mortgage may be worth it for seniors right now. Here are three compelling reasons why a reverse mortgage could be worth it for seniors today. Borrowing costs are high While inflation has steadily cooled from a 40-year high in June 2022, interest rates have remained high, with the benchmark interest rate range surging to its highest point in 22 years last summer and remaining there ever since. That’s caused rates on everything from mortgages to credit cards to personal loans to rise in tandem, making borrowing especially expensive right now. If you’re coping with high interest debt in this climate — and don’t want to consider debt relief options as an alternative — then a reverse mortgage could be an attractive option. Depending on how much of your home you’ve paid off, you could be looking at a substantial amount of equity to tap into right now, which can then help you pay down your existing, expensive debts. Relief may be delayed To lighten expenses, today’s interest rates need to come down. And while hope for relief was high at the start of 2024 it’s significantly dimmed since then thanks to a series of disappointing inflation reports. The latest, for February, showed inflation rising in the month to 3.2% — an increase from January and more than a full percentage point above the Federal Reserve’s target 2% goal. Against this backdrop, at least one Fed official recently argued that interest rate cuts may not be on the horizon for this year either. That delayed relief will hurt many, leading to a search for alternative ways to make ends meet. A reverse mortgage could be one of them. It may be better than the alternatives If you’re a senior in need of extra cash, it can be helpful to research all alternatives. Unfortunately, right now, many may not be as advantageous as a reverse mortgage. Credit card interest rates are hovering around 20% right now while personal loans are in the double digits, too. Home equity loans and home equity lines of credit (HELOCs) can be beneficial for the right homeowner but since the home is used as collateral in those circumstances, it can be dangerous without a clear repayment plan. But reverse mortgages don’t come with high rates — or the risk of losing your home. You’ll simply need to repay what you borrow if you sell the home or have a loved one do so after you have died. The bottom line With borrowing costs elevated, the prospect of relief uncertain and multiple, less-advantageous financing options, many seniors may find a reverse mortgage to be a viable way to boost their income — and pay down high-interest debt. While this option is only available for those 62 and older and will heavily depend on how much of your home has been paid off, it could be worth exploring for select homeowners right now. Contact me to get started today. By Matt Richardson