Reverse mortgages explained
Eligibility and basics The Federal Trade Commission’s Consumer Advice says a reverse mortgage is an option for those age 62 or older who can borrow money based on their equity, or how much money one could get for the home if sold after what is owed on the mortgage is paid off. At least one owner must live in the house most of the year. Reverse mortgages may be paid as a cash lump sum, as a monthly income or as a line of credit that enables the homeowner to decide how much is desired and when. Determining eligibility There is a misconception that a loan that requires no monthly repayment of principal or interest will not come with any eligibility considerations. Premier Reverse Mortgage says there are some things to know before doing reverse mortgages. To prevent homeowners using reverse mortgages to avoid downsizing due to financial shortcomings, certain eligibility parameters must be met, including a credit history analysis, income requirements, age requirement, and property stipulations. These criteria may differ from lender to lender. Differences between traditional mortgages and reverse mortgages Unlike a traditional mortgage where payments are made to principal and interest and the balance goes down over time, with a reverse mortgage, borrowers do not make any payments right away. The loan balance goes up over time and the loan is repaid when the borrower no longer lives in the home. The homeowners or their heirs will eventually have to pay back the loan, usually by selling the home. However, as the loan balance increases, the home equity decreases with a reverse mortgage. This can affect a surviving spouse or other family members. The FTC advises homeowners to confirm the reverse mortgage has a “non-recourse” clause, which means that the borrower or the borrower’s estate cannot owe more than the value of the home when the loan becomes due and the home is sold. Additional considerations Due to fees and other requirements, a reverse mortgage may be a more expensive way to borrow money. Other ways to borrow against equity may be a better fit, such as a home equity line of credit. Furthermore, since reverse mortgages are for older adults, scams are prevalent. Some include contractors who approach seniors about getting a reverse mortgage to pay for repairs, or scams targeting veterans. Borrowers considering reverse mortgages should first speak with a qualified financial planner. Homeowners in the United States can access information through the Consumer Financial Protection Bureau. All options, costs and interest rate information should be confirmed before signing on the dotted line.
Worried About Assisted Living Costs? Here Are Your Options
Nursing home and Long Term Care costs Long-term care in residential facilities like nursing homes is a financial challenge for many. When dealing with a loved one who is disabled, elderly or ill, families often try every other kind of long-term care facility first. Because nursing homes provide more health care services than some of the other options, the cost is significantly higher. Before committing to a nursing home, explore both assisted living and in-home care and compare their services and costs. You only need a nursing home for rehabilitation or long-term care when you require skilled nursing and help with assisted living services. If you’re thinking about how to cover nursing home costs, it may help to speak with a financial advisor. Nursing Home Costs Nursing homes differ from assisted living since there is 24-hour per day skilled nursing available to attend constantly to the medical needs of the patients. Nurses may be registered nurses, licensed practical nurses or certified nursing assistants available depending on the level of care offered by the facility. Nursing homes also provide help with daily living activities. A Genworth Financial Cost of Care Survey in 2020 found that the average daily cost of a semi-private room is $7,756 per month or over $93,000 per year. Alaska is the most expensive state for nursing home care while Texas is the cheapest. Sometimes, individuals only need a short-term stay in a nursing home. More often, nursing home stays are longer in nature. The National Center for Health Statistics published a 2019 report that said the average length of stay in a nursing home is 485 days. This cost is only for basic room and board. If special services are needed, that’s extra. The national median cost for a nursing home stay is $255 per day and $7,756 per month for a semi-private room. For a private room, which jumps up to $290 per day and $8,821 per month. For assisted living, the national median cost is $4,300 and $4,576 for in-home care with caregivers. Private Pay If you have access to Home Health Services, they can provide in-home help for up to 35 hours per week paid for by Medicare. The in-home care has to include skilled nursing care although Home Health can help with light housekeeping duties. You will have even better luck using Home Health Services for rehabilitative care. Medicare will cover occupational therapy, speech therapy and physical therapy at home for up to 60 days. You must have a physician approve a plan of care and go through a certified Medicare agency. If you need longer term nursing home care, or even permanent nursing home care, then you have to weigh your payment options. Some take out a reverse mortgage to help defray the costs. A reverse mortgage taps into the equity you already have in your home. Before taking out a reverse mortgage, carefully study the terms of the mortgage and verify the credentials of the lender. A reverse mortgage does have to be paid back although they are usually paid back when the house is sold. Others tap into retirement accounts. If you have a 401(k) or similar account or a traditional Individual Retirement Account (IRA), then you should speak with a tax advisor or financial advisor to determine the tax implications of liquidating your account before you do anything. Long-Term Care Insurance Long-term care insurance is a great option to pay for nursing home care if you have planned ahead and have had a policy for several years. It pays for certain expenses of in-home care, depending on the policy. All long-term care insurance policies are not created equally. Older policies, particularly, are very variable in their terms. You don’t want to spend years paying a premium for a long-term care insurance policy and then have it be of little use. However, after 65, 70% of us are going to need long-term care for some reason at some point, so it pays to be prepared. Many of the newer long-term care policies are attached as riders on permanent life insurance policies. The rider allows the policyholder to access some of the face value of the life insurance policy to pay for long-term residential care like nursing home care. It’s often wise to ask a financial advisor for help in choosing a long-term care insurance policy since they tend to vary widely, and you don’t want to pay for something that you won’t be able to use. It’s important to know that most long-term insurance policies do not cover pre-existing conditions – those that you might have before you take out the policy. These would include diabetes, cancer and heart disease. These policies also usually do not include long-term care for things like alcoholism, drug abuse or addiction, mental illnesses or self-inflicted wounds. Medicare Medicare will usually cover the first 100 days of a nursing home stay. It is for short-term intense rehabilitation from an injury or short-term illness. It does not cover long-term nursing home stays unless you buy a Medicare Advantage policy (Part C) and that policy has nursing home coverage. A Medicare Advantage policy has benefits you pay for over the original Medicare. Check with the provider before you buy a Medicare Advantage policy if you want nursing home coverage. Medicaid Medicaid is usually the funding source of last resort for nursing home care, but unless you are wealthy or have a good long-term insurance policy, many people have to resort to Medicaid. There is a Medicaid program in every state that pays for nursing home care if you can’t pay for it yourself. Medicaid involves strict and complicated “means testing” of your income level and your assets. In general, an applicant over 65 cannot have more than $2,523, in 2022, in income each month. For a married couple, your income cannot exceed $5,046 per month. There is also an “asset test” with Medicaid to determine eligibility. You can have no more than $2,000 in assets to qualify for Medicaid to pay for your nursing home stay. Your home, car
10 Possible Sources of Income in Retirement: Which Are Best for You?
Many of us will need multiple income streams in retirement. Here are a bunch to consider. If you’re thinking that when you’re retired, you’ll get by on Social Security income alone, or maybe Social Security and a little more, think again. As of September, the average monthly Social Security retirement benefit was just $1,841, or about $22,000 for the year. Most retirees will need a lot more income than that, and they may need to set up multiple income streams for retirement. Here’s a look at a bunch of possible income sources for your retirement. See which ones make the most sense for you. 1. Pension Pensions are far less prevalent these days, replaced at many companies by 401(k) plans and the like. If you work at a government job or belong to a union, you may have pension income coming to you, and if so, that’s a terrific and potentially powerful income stream in retirement. If you’re young and like the idea of pension income in your future, look into the kinds of jobs that offer it. 2. Dividends Dividend-paying stocks are often underappreciated, but they can be powerful wealth builders. Remember, after all, that not only do they pay a dividend, and tend to increase that dividend over time, but as long as they’re healthy and growing, their stock prices should rise over time, as well. If you have a portfolio worth, say, $400,000, with an overall dividend yield of 3%, you’re set to collect $12,000 per year — a sum likely to increase over time. 3. Annuity There are many kinds of annuities, and some are much better than others. Simple fixed annuities can promise you a certain sum every month for the rest of your life, while variable and indexed annuities will tie your payments to some security’s performance. You can buy annuities that will pay until both you and your spouse die, and you may be able to build in an annual percentage increase, too, to help keep up with inflation. www.HomeForLifeReverseMortgage.com 4. Reverse mortgage While it’s not right for every retiree, a reverse mortgage can serve some very well. It involves collecting a lump sum or regular payments from a lender, using your home as collateral. This can mean your heirs won’t inherit it, unless you or they pay off your loan when you’re no longer living in the home. 5. Rental income This is another option not suitable for everyone. Owning rental properties and collecting rents can seem wonderful, but it can come with hiccups, too, such as periods when the property is empty and you still have to pay for insurance, maintenance, repairs, taxes, and so on. 6. Retirement accounts and other investment accounts This is a classic source of retirement income for many: your various retirement accounts, such as IRAs and 401(k)s, and other investment accounts, full of stocks, bonds, and/or mutual funds, typically. You might collect dividends or interest from them, but you can also sell off chunks of these accounts over time to generate income for yourself. 7. Life insurance with cash value If you have a life insurance policy that features a cash value, you may be able to cash it out, or surrender the policy, for the cash surrender value. That cancels the policy, but can put some handy dollars in your pocket. 8. Inheritance Many people will inherit money from loved ones, and that money can be saved and/or invested, to be drawn on in retirement. For some people, this may be a lot of money, and for many others, it won’t be much. Still, even if you receive, say, $30,000, that can go a long way in a year and can keep you from having to tap other sources. 9. Side gigs You probably won’t want to or won’t be able to work a part-time job throughout your entire retirement, but it can be a smart move in your early years. It can keep you busy, for starters, preventing you from feeling lonely, restless, or even depressed, as happens to many retirees. If you find some paying activities you enjoy, this won’t even be such a chore. 10. Social Security And then, of course, there’s Social Security. While the average benefit was recently $1,841 per month, millions collect more than that — though perhaps not as much as you might hope. The nearly unattainable maximum monthly benefit was recently $4,555, or about $54,600 on an annual basis. Note that there are ways to increase your Social Security benefits, too. There’s much more to know about each of the income sources above, so be sure to investigate any of interest further. With some digging and thinking, you may come up with some other solid possibilities, as well. Health savings accounts, for example, can serve as retirement accounts. By Selena Maranjian – Nov 11, 2023
Real Estate and Retirement: Your Guide to a Secure Future
Planning for retirement is like preparing for a long journey. You want to make sure you have enough resources to enjoy your golden years comfortably. One often-overlooked asset that can help secure your retirement is real estate. In this article, we’ll explore how you can use real estate as a part of your retirement planning strategy, even if you’re new to this world. Downsizing: A Smarter Space Many people find that as they near retirement, their current home might become too big for their needs. Downsizing means selling your larger home and buying a smaller, more manageable one. Here’s how it can be a part of your retirement plan: 1. Save Money: Smaller homes typically cost less to maintain, with lower property taxes and utility bills. This can free up money for your retirement fund. 2. Cash In on Equity: If you’ve paid off your mortgage or built up significant equity in your current home, selling it can provide a substantial nest egg for your retirement. 3. Less Maintenance: A smaller home often means less upkeep and fewer chores, giving you more time to enjoy your retirement. Rental Income: An Extra Source of Cash Investing in rental properties can be a reliable source of income during retirement. Here’s how it works: 1. Purchase a Rental Property: You can buy a property, like a condo or a small house, and rent it out to tenants. The rent they pay becomes a consistent stream of income for you. 2. Property Management: You can hire a property management company to handle the day-to-day tasks of being a landlord if you prefer a more hands-off approach. 3. Supplement Retirement Income: The rental income can supplement your retirement savings and provide financial security. Reverse Mortgage: Tap Into Home Equity A reverse mortgage is a unique financial tool that allows homeowners aged 62 or older to convert a portion of their home equity into cash. Here’s how it can be a part of your retirement plan: 1. Stay in Your Home: You can continue living in your current home while receiving monthly payments from the reverse mortgage. 2. No Monthly Payments: Unlike a traditional mortgage, you don’t need to make monthly payments. The loan is repaid when you sell the home or pass away. 3. Financial Flexibility: You can use the funds from a reverse mortgage to cover everyday expenses, healthcare costs, or travel plans. In conclusion, real estate can play a significant role in securing your retirement. Whether you’re downsizing, earning rental income, exploring reverse mortgages, or investing, there are various ways to use real estate to your advantage. It’s essential to consider your goals, preferences, and financial situation when planning for a secure retirement. If you’re new to real estate or have questions, don’t hesitate to consult with a real estate professional or financial advisor who can guide you on the path to a comfortable retirement. Always remember, we are here to help you secure your future.
HUD Issues New Guidance on Reverse Mortgages
in Affordability, Daily Dose, Data, Featured, FHA/VA/HUD, FHFA, Government, GSEs, Lending and Originations, Market Studies, Market Trends, News, Origination, Real Estate 1 day ago 236 Views The Federal Housing Administration (FHA) has published its consolidated and comprehensive policies for the Home Equity Conversion Mortgage (HECM) program, and the inclusion of these policies in the Single-Family Housing Policy Handbook 4000.1. For the first time ever, all HECM program requirements will be available in a single place. Today’s publication eliminates more than 100 individual policy documents associated with the HECM program. This consolidation into a single handbook will strengthen the understanding and implementation of the program by lenders and servicers, enhancing their ability to actively engage with the more than 60,000 senior homeowners who choose to obtain a HECM to age in place in their own homes each year. “Home Equity Conversion Mortgages are one of the strongest tools we have to ensure thousands of seniors can age in place,” said HUD Secretary Marcia L. Fudge. “This new guidance will give people one single place to easily access the information needed to obtain and maintain a HECM.” National Reverse Mortgage Lenders Association (NRMLA) recently reported that homeowners 62 and older saw their housing wealth increase by $820 billion in the second quarter of 2023 to $12.69 trillion, according to the latest NRMLA/RiskSpan Reverse Mortgage Market Index. The NRMLA/RiskSpan Reverse Mortgage Market Index (RMMI) rebounded to 444.16, nearing its historical peak in Q2 of 2022. Senior home values reached an all-time pinnacle at $14.998 trillion, while mortgage debt surged to $2.3 trillion. “Inflation is still a concern, and some economists are still predicting a possible mini recession in 2024, so this is welcome news to see home equity levels are rebounding somewhat,” said NRMLA President Steve Irwin. “The strategic use of home equity can play an important role in helping to offset the impact of these economically challenging times and is something that every homeowner should consider when developing or updating their retirement plan.” With the incorporation of the new HECM sections into the Single-Family Handbook, FHA has completed its multi-year effort to deliver a consolidated, comprehensive, and authoritative source of Single Family policy for lenders, servicers, and other FHA program participants. The new sections of the Single-Family Handbook governing the HECM program include: “HECM mortgages are an important tool to help senior homeowners age with security and dignity in their own homes,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. “The completion of the HECM sections of our Single-Family Handbook reinforces FHA’s commitment to the HECM program and is part of a larger effort to retool the program for long-term success.” The FHA also recently announced changes to the HECM for Purchase program by expanding the list of acceptable funding sources, including premium pricing, and permitting additional interested party contributions to satisfy a HECM borrower’s monetary investment requirement. The changes were published as a Federal Register Notice [Docket No. FR-6382-N-01] and invites interested stakeholders to submit public comments by November 24, 2023. “This body of work follows extensive engagement and feedback from HECM lenders, servicers, consumer advocates, and other housing industry participants over the last two years–engagement that was instrumental in helping us move this initiative to completion,” said Deputy Assistant Secretary for Single-Family Housing Sarah Edelman. “The newly consolidated HECM single-source handbook sections have comprehensive and updated language that delivers greater clarity about our existing policies and establishes a more flexible framework for us to implement future policy changes.”
The Hidden Wealth Effect & Senior Home Equity
The Hidden “Wealth Effect” Economists have long recognized a phenomenon known as the “wealth effect”. As asset values, such as stocks and home prices rise, so does consumer confidence prompting increased spending which stimulates economic growth. Such was the case for most Americans of all income levels in the two years following the pandemic. However, by 2023 the wealth effect disappeared as quickly as it had arrived, thanks to inflation and ever-increasing federal spending. Most Americans, including retirees, are more willing to increase discretionary spending when they feel wealthier- whether or not they actually have more cash. However, with stimulus savings nearly exhausted and inflation putting pressure on personal budgets consumers are becoming increasingly cautious. But what about older homeowners with significant housing wealth? For many older homeowners, their property represents not just a place of comfort and nostalgia, but also a hidden treasure trove of wealth. This wealth is often locked away in the form of home equity, which can be a powerful financial tool when utilized strategically. In this article, we will explore the concept of the hidden wealth effect and how older homeowners can leverage their home equity to secure their financial future. The Hidden Wealth Effect The hidden wealth effect refers to the potential increase in spending and financial security that comes from realizing the value and tapping into one’s assets, in this case, home equity. For older homeowners, this effect can be particularly pronounced, offering a unique opportunity to enhance their quality of life, fund retirement, or leave a legacy for their loved ones. Ways to Unlock the Hidden Wealth Effect Benefits of Leveraging Home Equity Conclusion The hidden wealth effect is a powerful concept that can significantly impact the financial well-being of older homeowners. The challenge for reverse mortgage originators is to communicate with a homeowner who may feel poor- or cash-poor- when they may have hundreds of thousands of dollars of hidden wealth locked in the bricks and mortar of their home. Seeking professional advice from financial advisors, estate planners, and real estate experts is crucial to ensure that these strategies are implemented effectively. In doing so, older homeowners may possibly unlock the full potential of their property, securing a comfortable and prosperous future. by Shannon Hicks October 10, 2023
What Happens When Reverse Mortgage Runs Out
Reverse mortgages have gained popularity among older homeowners as a way to tap into their home equity without having to sell their property. This financial tool allows individuals aged 62 or older to borrow against the value of their home, with the loan amount typically increasing over time. However, it is crucial to understand what happens when a reverse mortgage runs out and the implications it can have on both the homeowner and their heirs. Interesting Facts about Reverse Mortgages: 1. Loan Repayment: The loan becomes due and payable when the homeowner dies, sells the home, or permanently moves out. This means that the homeowner or their estate must repay the loan balance, including any accumulated interest and fees. 2. Home Sale: If the homeowner decides to sell the property, the proceeds from the sale will be used to repay the reverse mortgage. If the sale price exceeds the loan balance, the homeowner or their heirs will receive the remaining funds. However, if the sale price is insufficient to cover the loan balance, the Federal Housing Administration (FHA) insurance associated with most reverse mortgages will cover the difference. 3. Heir’s Options: Upon the homeowner’s death, their heirs have several options. They can repay the loan and keep the home, sell the home to repay the loan and keep any remaining funds, or allow the lender to sell the property to repay the loan. It is essential to note that heirs are not personally liable for the loan, and the lender cannot seek repayment from any other assets. 4. Non-Recourse Loan: Reverse mortgages are non-recourse loans, meaning that the borrower or their estate will never owe more than the appraised value of the home at the time of repayment. This protects the homeowner and their heirs from being personally responsible for any shortfall if the loan balance exceeds the home’s value. 5. Counseling Requirement: Before obtaining a reverse mortgage, borrowers are required to undergo counseling from a HUD-approved counselor. This counseling session aims to ensure that borrowers understand the loan terms, costs, and potential consequences. It helps borrowers make informed decisions about whether a reverse mortgage is suitable for their financial situation. Common Questions about Reverse Mortgages: 1. Can I lose my home with a reverse mortgage?No, as long as you continue to meet the loan obligations, such as paying property taxes and insurance and maintaining the property, you can remain in your home for as long as you wish. 2. Can I leave my home to my heirs with a reverse mortgage?Yes, you can leave your home to your heirs. However, they will need to repay the loan balance, either by selling the home or using other funds. If the loan balance exceeds the home’s value, the FHA insurance associated with reverse mortgages will cover the difference. 3. Can I use a reverse mortgage to buy a new home?Yes, a reverse mortgage for purchase allows you to use a reverse mortgage to buy a new home. You will need to meet certain eligibility criteria and use the reverse mortgage proceeds to pay for the new home’s purchase price. 4. How much money can I borrow with a reverse mortgage?The loan amount is determined by factors such as your age, the appraised value of your home, and current interest rates. Generally, the older you are and the more valuable your home, the higher the loan amount. 5. Do I have to repay a reverse mortgage while I am still living in my home?No, you do not have to make monthly mortgage payments while you are still living in your home. The loan is repaid when you sell the home, move out permanently, or pass away. 6. Can I lose my home if I outlive the reverse mortgage loan amount?No, you will not lose your home if you outlive the loan amount. You can continue to live in your home as long as you meet the loan obligations, such as paying property taxes and insurance. 7. Can I use a reverse mortgage to pay off my existing mortgage?Yes, one common use of a reverse mortgage is to pay off an existing mortgage. This can help eliminate monthly mortgage payments and free up additional cash flow. 8. Can I refinance my reverse mortgage?Yes, it is possible to refinance a reverse mortgage. However, the refinancing process and eligibility criteria may differ from those of traditional mortgages. 9. Can I use the reverse mortgage proceeds for any purpose?Yes, you can use the reverse mortgage proceeds for any purpose. Whether it’s paying off debts, covering medical expenses, or enjoying retirement, the choice is yours. 10. What happens if I need to move into a nursing home or assisted living facility?If you move into a nursing home or assisted living facility temporarily, the reverse mortgage will not become due. However, if the move is permanent, such as more than 12 consecutive months, the loan will become due and payable. 11. Can I sell my home with a reverse mortgage?Yes, you can sell your home with a reverse mortgage. The proceeds from the sale will be used to repay the loan balance, and any remaining funds will be given to you or your heirs. 12. Can I pay off a reverse mortgage early?Yes, you can pay off a reverse mortgage early without incurring any prepayment penalties. This can be done by selling the home, refinancing the reverse mortgage, or using other funds to repay the loan. 13. Can I qualify for a reverse mortgage if I have bad credit?Reverse mortgages do not have strict credit score requirements. The loan eligibility is primarily based on your age, home value, and current interest rates. 14. Are reverse mortgage proceeds taxable?No, reverse mortgage proceeds are not considered taxable income. They are considered loan advances and are not subject to federal income tax. Understanding what happens when a reverse mortgage runs out is crucial for homeowners considering this financial option. By knowing the facts and answers to common questions, individuals can
For different people, ‘aging in place’ may mean different things
The phrase could be interpreted differently according to different aging and academic authorities October 6, 2023, 11:54 am By Chris Clow A reverse mortgage is often touted as an efficient product that can help seniors to “age in place,” but the phrase itself may mean different things to different people. This is according to Jennifer Molinsky, project director of the Housing and Aging Society Program at the Joint Center for Housing Studies of Harvard University, sharing perspectives with Morningstar. “People toss around that phrase,” she said. “But what does it really mean? And what do you need to be considering if that’s your plan?” Unpacking the phrase means understanding that it could have different definitions for yourself and others, she added. “For some, it means never leaving the house they’re in,” she told Morningstar. “For others, it means staying in their community but living in a different house. And for others it means ‘anywhere but a nursing home.’” After the phrase is properly defined for the specific individual, it will be easier to assess the individual’s circumstances and their goals for accomplishing the goal of aging in place, wrote columnist Mark Miller. “Start with an evaluation of your physical environment,” he said. “A very small share of homes in the U.S. are accessible to people with mobility problems, according to research by JCHS. Just 3.5% have single-floor living, no-step entry, and extra-wide halls and doors that can accommodate wheelchairs. The figure drops below 1% if you include features like electrical controls reachable from a wheelchair.” Assessing how much or little care a person has access to under their conception of aging in place is also a critical factor in the ultimate decision, since some may require in-home caregivers while others will be able to rely more easily on family. “It’s also important to note that Medicare does not pay for most long-term care services,” the column reads. “[R]egardless of where they happen; reimbursement is limited to a person’s first 100 days in a skilled nursing facility.” Finally, determining the level of community support is also an important determinative factor when assessing how aging in place combines with needs in later life. “How will you get around if you no longer drive? Are there social opportunities that can help you avoid becoming isolated?,” the column asks. “Innovations are also occurring nationally at the grassroots level that may offer a different kind of community than you’d previously envisioned.” These include “villages” that provide support and social contact to those who are aging in place, while older people themselves are also taking the initiative to form their own communities called Naturally Occurring Retirement Communities (NORCs). In any event, Molinsky added that discussions about choosing to facilitate aging in place, and surrounding policy to support it, are topics worthy of wider conversation. “These are difficult discussions to have, but we need to get better about talking about them,” she explained.
What Is a Reverse Mortgage?
As a senior, your most significant asset may be your home. If money is tight in retirement, you may be interested in getting a reverse mortgage. Here, we’ll discuss everything you need to know about reverse mortgages so you can make the best decision. What is a reverse mortgage? With a traditional mortgage, you take out a loan to finance a home and pay your lender back over time by making a monthly mortgage payment. A reverse mortgage works the opposite way — instead of making a monthly payment, you receive payments based on your home equity. This option is only available to older homeowners who meet eligibility criteria, which we’ll discuss below. You might also hear a reverse mortgage referred to as a home equity conversion mortgage, or HECM. How a reverse mortgage works With a reverse mortgage, you enter into an agreement where a lender pays you based on your equity in your home. Your lender doesn’t take ownership of your home, and you’re still required to cover the costs associated with it, like property taxes, homeowners insurance, and other maintenance costs or expenses. You can use the money from a reverse mortgage for any purpose — it doesn’t have to relate to your home. As a borrower, you have a few options when it comes to receiving your reverse mortgage proceeds: You’ll need to consider your specific needs when determining which option is best for you. Who qualifies for a reverse mortgage? There are certain criteria you’ll need to meet to qualify for a reverse mortgage, according to Steve Irwin, President of the National Reverse Mortgage Lenders Association (NRMLA): How much money can you get from a reverse mortgage? The amount of money you can get from a reverse mortgage loan depends on your age and the value of your home, as well as the current interest rate and the type of reverse mortgage you get. However, you shouldn’t expect to get the cash equivalent of the full value of your home. Rather, you’ll get just a portion of it. How much does a reverse mortgage cost? Just as there are closing costs associated with a regular mortgage, so too will you pay a number of fees when you enter into a reverse mortgage agreement. First, there’s a loan origination fee, which is either $2,500 or 2% of the first $200,000 of your home’s value — whichever is higher. From there, you’ll pay 1% for any amount of home value over $200,000. The maximum fee you’ll pay is $6,000. You’ll also need to pay for an appraisal and a compulsory housing counseling session. Plus, you should factor in mortgage insurance premiums — specifically, 2% at closing plus an annual fee equal to 0.5% of your loan balance. You may also be on the hook for monthly loan servicing fees that top out at $30 for fixed-rate loans and $35 for adjustable-rate loans. And there may be some additional third-party fees you’re charged at your lender’s discretion. Types of reverse mortgages There are different reverse mortgage types you might choose from: Pros and cons of a reverse mortgage A reverse mortgage is an excellent idea for some people — but not everyone. Here are the pros and cons of getting a reverse mortgage. Pros There are some advantages to a reverse mortgage: Cons On the other hand, reverse mortgages have their drawbacks. Avoiding reverse mortgage scams The reverse mortgage industry has long been blasted for its predatory practices. In fact, low-income areas are often targeted in an effort to get desperate homeowners to sign up. To avoid falling victim to a scam, you’re better off reaching out to lenders about a reverse mortgage rather than responding to unsolicited offers. You should also avoid signing any contracts or documents you don’t understand. If you have questions about the process, reach out to the Department of Housing and Urban Development at 1-800-347-3735. Is a reverse mortgage a good idea? It can be. With a reverse mortgage, you get access to income without having to sell your home and move. If you’re a senior homeowner with a lot of equity in your home, it could be an easy way to borrow. Just be aware of the drawbacks before moving forward. You may decide that you’re better off with a home equity loan or line of credit than a reverse mortgage. Or, you may decide that the cost of owning your existing home is too high, even with those reverse mortgage payments. There’s no right or wrong answer, so ultimately, it will boil down to your financial needs and what you’re comfortable with. Reverse mortgage resources from NRMLA The NRMLA offers additional information and resources at ReverseMortgage.org, including: By: Maurie Backman
Should You Look Into a Reverse Mortgage if You Need Funds for Retirement?
A lot of people look forward to someday stepping away from the hassles of the working world and getting to retire. However, being able to actually end your career relies upon having the money to cover your expenses in the absence of a job. AARP notes that you’ll need to replace about 80% of your pre-retirement income in order to live comfortably, and depending on your hopes and dreams for your retirement, you might want the flexibility to spend more money on travel and crossing items off your bucket list. And this is where some people run into trouble. If you haven’t been able to sock money away in a brokerage account to invest and grow it over your career, you might be lacking the savings to comfortably retire. Social Security payments will not match your old salary, and if you’re a long way off from retiring, how much they cover could change over time. For some people, a reverse mortgage looks like an attractive option. But what is a reverse mortgage, and are they worth considering? What is a reverse mortgage? You’re probably familiar with the concept of a mortgage loan. You stretch out the cost of buying a home over many years (15- and 30-year mortgage terms are common) in exchange for being charged interest on the loan by your mortgage lender. As you make your payments, you build up more and more home equity, until eventually, you’ve paid the loan off entirely and the home is yours outright. Along the way, you can also borrow against your home equity in the form of additional mortgages, home equity loans, and home equity lines of credit. A reverse mortgage is another way of borrowing against your home equity, but the loan is repaid when you no longer live in the home. Interest and fees are added over time to the amount you borrow, and eventually, you’ll have to pay the money back (along with these extra costs) by selling the home (or if you’ve passed on, your heirs will handle this). You can receive the money as a lump sum, in monthly installments, or as a line of credit you can draw from as needed. The most common type is called a HECM (or home equity conversion mortgage), and you must be 62 or older to qualify. There are other conditions to meet — the home must be your primary residence, you must keep up with maintenance and property taxes, and you must not have any outstanding federal debt, like unpaid income taxes. Is it a good idea to do this? Like so many aspects of personal finance, deciding whether to get a reverse mortgage to help you pay for retirement is just that: personal. So, I can’t answer this question for you! But here’s a look at the upsides and downsides of taking out a reverse mortgage. Pros If you’ve spent years building home equity, getting to access it to cover your living costs in retirement can certainly be a good thing. And you don’t even have to move out, you can remain in the home you love, and it’ll stay in your name. The payments you receive from your reverse mortgage aren’t taxable, so that can improve your bottom line at a time of life when money can be tight. And reverse mortgages are a type of non-recourse loan, which means they are backed by the value of the home itself, rather than any other assets, so the amount due can never be more than your home is worth. Cons A reverse mortgage is not free, and there’s no guarantee that you’ll qualify. You’ll have to meet the conditions noted above as well as others (for example, if you own a co-op, your home might not be eligible). And you’ll have to pay closing costs, just like with a traditional mortgage. Those fees will eat into the money you’d get from your home equity. And eventually, your reverse mortgage must be paid off. Perhaps it’s your intention to leave the home to your heirs when you die and have them handle selling it to pay off the loan (or paying it off otherwise). If not, it’ll be on you to sell your home and move. And if you pass away before your spouse, they may or may not be able to remain in the home. If things are looking a little tight in your retirement budget, and you have a lot of home equity, a reverse mortgage could be just the ticket for you. But consider the pros and cons and speak with a HUD counselor if you’re intending to go with a HECM (which is backed by HUD). You deserve the most stress-free retirement you can get, and this includes finding ways to cover your costs. By: Ashley Maready