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.
4 Ways Older Americans are Hurting Financially
Which demographic group is hurt the most by the Federal Reserve’s series of interest rate hikes and inflation? If you answered older Americans you would be correct. Here are four ways our older neighbors and friends are suffering in today’s economy. #1 Purchasing a home While older homebuyers are a smaller slice of the purchase market, many have a need or desire to either relocate or right-size during their retirement years. But there’s a catch thanks to the Federal Reserve’s measures attempting to lower inflation. Higher interest rates. A single percentage point increase in home mortgage rates pushes out 16% of low-income borrowers according to a recent Federal Reserve Board working paper. Some homeowners over the age of 62 could possibly use a HECM for Purchase to close the gap. Nevertheless, the odds are most are either unable to get a reverse mortgage, or unfamiliar with the loan and consequently will be pushed to the sidelines due to a lack of affordability. However, more significant problems loom for today’s American retirees, most of which are related to daily living expenses. #2 Repairs Most retirement planning is focused on meeting monthly expenses. But what about those unexpected lump-sum expenses such as replacing an aging HVAC system or purchasing a vehicle? MSN noted in a recent column that one trick economists recommend for housing costs is to budget 1% of your home’s total value for annual repairs and maintenance. For example, the owners of a $400,000 home should allocate $4,000 annually for potential unexpected purchases or repairs. #3 FoodThe U.S. Department of Agriculture’s 2023 forecast for food prices is stark. The agency predicts that food prices could be… 10% higher than they were in 2022. “Food prices are expected to grow more slowly in 2023 than in 2022 but still at above-historical average rates,” the USDA’s Food Price Outlook said in late March. Eating out will cost more as well with the USDA forecasting an 8.3% increase. While the rate of inflation has somewhat slowed, food prices continue to climb. #4 Medicare Workers who were fortunate enough to have health insurance benefits as part of their employment are likely going to have to foot the bill. The average Medicare premium for the standard part B is $164.90 a month, Part D runs about $49 a month, and typical supplement plans run about $155. For a single individual, health-related premiums can take $400 or more out of their monthly budget. A lifeline Money Magazine reports that since 2000 American seniors have lost 40 percent of their purchasing power, much of that in the last year. How in the world do older Americans cope? In several ways. Many choose to work longer while some are deciding to return to the workforce. Others are turning to the ‘gig economy’ taking jobs delivering food and other staples. Not surprising considering the uncertain economy and inflation. The tragedy is many older homeowners simply ignore or have misgivings about another potential solution that could allow them to enjoy their retirement without the burden of employment- a reverse mortgage. by Shannon Hicks March 27, 2023
How a Reverse Mortgage Works After the Borrower’s Death
When the last surviving borrower on a reverse mortgage loan passes away, the loan becomes due and payable. The amount due is equal to the full loan balance, which is the sum of the borrowed amount, interest, and other charges. Here’s an overview of how your client and their family can expect the reverse mortgage to work after death. 5 Things to Know About Conclusion In conclusion, a reverse mortgage loan must be paid back after the passing of the last surviving borrower. The estate is responsible for repaying the loan, and has several options for doing so, including selling the property, paying off the loan with other assets, or refinancing the loan. Typically, the loan is repaid within six months of the date of death, but extensions may be granted. Your client and their family should always speak with their attorney and/or financial advisor to determine loan repayment for their specific circumstance. The estate is generally not held responsible for any loan balance above the property’s value, thanks to the loan insurance.
Suze Orman Says Yes to Reverse Mortgages
Suze Orman on her CNBC show recently responded to a viewer question by stating that a reverse mortgage is a better option than selling stocks. During the segment, a caller stated that his 85-year-old father had been liquidating stocks over the past few years to pay for larger ticket items, including the upkeep of his home. His question was, “is it better for him right now to continually unload his portfolio and incur capital gains on the stocks he sells or risk borrowing, in a sense, against his kids future during these crazy times?” The father would like his two kids to inherit the home and his investments after he passes. Suze says that a reverse mortgage would be the better option. Her reasoning is as follows: The heirs will have a better chance of recouping the lost value of stocks over the years since the stock market recovers faster than the real estate market. Reverse mortgage interest rates are low and the mortgage relief bill that came into effect in October makes reverse mortgages far more beneficial than ever to take out today than ever before because of fees being limited. This segment highlights how a reverse mortgage can help extend the value and life of other assets when they are provided additional time to gain value before being drawn down. When looking at retirement plans, older homeowner’s need to take a holistic approach. There is no one size fits all solution. A reverse mortgage will not be the right solution for everyone; however, it should not be overlooked as part as the overall retirement plan. When consulting a retirement planner be sure to bring up the option of a reverse mortgage. After all, the home is more than likely the largest source of untapped capital for most senior homeowners. Credit: Josh Borba