Jumbo reverse mortgages are on the rise
As home values continue to rise, many homeowners seek financial solutions that align with their property’s new, increased values. Reverse mortgages offer a compelling option for seniors looking to tap into their home equity. However, the Federal Housing Administration (FHA) has a maximum claim amount on Home Equity Conversion Mortgages (HECMs), which is currently at $1,209,750. Therefore, for homeowners with property values that exceed this limit, jumbo reverse mortgages present an attractive alternative to access a larger amount of equity. A jumbo reverse mortgage is also called a proprietary reverse mortgage, a private reverse mortgage offered by financial institutions and lenders. Unlike FHA-insured HECMs, these loans are not subject to federal regulations, allowing for greater flexibility in loan amounts and other mortgage terms. These jumbo/ proprietary options are specifically designed for homeowners whose property values exceed the FHA maximum claim amount, but these options are also fantastic options for condominiums that are not approved by FHA (which is a requirement for the HECM). Since FHA lending limits do not restrict proprietary reverse mortgages, they allow homeowners with high-value properties to access significantly more equity compared to a traditional HECM. This makes them ideal for homes appraised above the $1,209,750 threshold, all the way up to $10M. FHA-insured reverse mortgages require borrowers to pay mortgage insurance premiums (MIP), which add to the overall cost of the loan. However, proprietary reverse mortgages do not have this requirement for MIP, which can be a bonus for homeowners. Proprietary reverse mortgages offer flexible terms regarding lump sum payouts or line-of-credit options. This allows homeowners to tailor their loan structure to fit their financial needs and retirement goals. Because these loans cater to higher-value homes, they often allow borrowers to access more of their home’s equity, which can be crucial for funding long-term care, home renovations, or other significant expenses. While HECMs require borrowers to be at least 62 years old, proprietary reverse mortgage programs are available to homeowners as young as 55. This opens options for people who need financial flexibility before reaching the standard HECM age requirement. While proprietary reverse mortgages offer notable advantages, borrowers should carefully evaluate their options. These types of reverse mortgages typically come with higher interest rates than FHA-insured reverse mortgages and may have different repayment terms. However, like FHA reverse mortgages, the proprietary options have the same non-recourse guarantees that ensure borrowers or their heirs never owe more than the home’s value. If you own a high-value home and need access to more equity than an FHA-insured reverse mortgage allows, a proprietary reverse mortgage could be an excellent option. Consulting with a reverse mortgage specialist can help determine whether this type of loan aligns with your financial goals and retirement planning needs. By Gabe Bodner
Ramsey calls a federally-insured loan a ‘Rip-Off’
Syndicated radio and television financial pundit Dave Ramsey has attracted a large audience with his no-holds-bar blunt advice for Americans struggling with debt or seeking financial guidance. While Ramsey may be adequately knowledgeable about many topics, most notably debt management, recent comments reveal that he remains woefully ignorant about reverse mortgages. A baseless accusation In a recent column by The Street Ramsey boldly asserts, “Reverse mortgages sound like a good plan — after all, who wouldn’t want a dream retirement funded entirely by their house! But here’s the truth: Reverse mortgages are major rip-offs”. As per previously baseless accusations against the loan Ramsey conveniently never specifies how a reverse mortgage is a bad deal only focusing on the loan’s upfront costs. Ironically Ramsey notes, “Homeowners who take out a reverse mortgage put up their house as collateral for the loan — that means you lose your house if you don’t live up to the terms of the loan”. Well, that’s precisely what you have with a traditional mortgage! So are 15 or 30-year mortgages scams as well, Mr. Ramsey? It’s not the interest rates “Reverse mortgages are especially risky for seniors because they carry high interest rates. Accruing debt could easily lead to defaulting on the loan and house foreclosure”. Again, a simple Google search would save Mr. Ramsey and Ramsey Solutions the embarrassment of spreading false information- a bad look for any company whose reputation hinges on the financial advice given to listeners and viewers. Also, what’s typically risky and conveniently not mentioned is that for older homeowners with a fixed income, the burden of a monthly mortgage payment is a clear and present risk. The truth is the rates for today’s Home Equity Conversion Mortgage (HECM) or federally-insured reverse mortgage are quite similar to traditional mortgages. The issue isn’t the interest rate, but that most borrowers do not make optional principal and interest payments. This means the accrued interest and FHA mortgage insurance premium are added to the previous month’s balance negatively amortizing over the life of the loan therefore increasing the ultimate amount due. The myth of no home appreciation What Ramsey and others also fail to mention is that a home with or without a mortgage or reverse mortgage for that matter appreciates just the same as any other. Reverse mortgage borrowers who didn’t take out all the proceeds could have a significant amount of remaining equity at the end of the loan which can be passed onto the homeowner’s children or heirs. For example, a couple with a $700,000 home gets a reverse mortgage to pay off their existing mortgage balance and eliminate their required monthly principal and interest payments of $1,800. Their starting balance (UPB: Unpaid Principle Balance) including financed fees and the mortgage payoff totals $200,000. If their monthly interest rate averaged 7 percent and you add another half-percent for the required FHA insurance premium their loan balance would be approximately $892,163 in 20 years. However, if their home appreciated by an average of three percent annually the home would be worth roughly $1.2 million leaving over $372,000 in remaining equity. Even better, the homeowners increased their monthly cash flow by $1,800 retaining $21,600 in cash each year and $432,000 in 20 years. . Final observations It’s unfortunate but not surprising to see pundits like Ramsey and others continue to disparage a loan that could have brought financial relief to older homeowners who were cash-constrained or sought to leverage their home’s value without required loan payments. “It seems nobody wants a reverse mortgage, but everyone wants what the reverse mortgage does for them. Clearly there is a disconnect between the product and what people think about the product”, said industry author and expert Dan Hultquist. True. That disconnect will continue as long as financial pundits and commentators place high theatre and entertainment over providing their audience with accurate and responsible information.
FHA Increases Loan Limits for 2025
The Federal Housing Administration (FHA) has announced its loan limits for 2025. The nationwide rise in median home prices indicates most buyers across the country will see increases. The FHA floor will increase from $498,257 to $524,225 for single-family home loans. The floor amount is the lowest the FHA loan limit can be for any area of the country. FHA’s ceiling loan limits, the maximum loan amount the agency will insure, will increase from $1,149,825 to $1,209,750 for a single-family property. The ceiling rises even higher to $1,814,625 in Alaska, Hawaii, Guam and the U.S. Virgin Islands. The following table lists the 2024 FHA loan limits for low- and high-cost areas: Property Size Low-Cost Area “Floor” High-Cost Area “Ceiling” Alaska, Hawaii, Guam, and U.S. Virgin Islands “Ceiling”1 One Unit $524,225 $1,209,750 $1,814,625 Two Units $671,200 $1,548,975 $2,323,450 Three Units $811,275 $1,872,225 $2,808,325 Four Units $1,008,300 $2,326,875 $3,490,300 The new loan limits will apply to all loans assigned FHA case numbers on or after Jan. 1, 2025. The 2025 FHA loan limits by Metropolitan Statistical Area (MSA) or county can be reviewed on FHA’s loan limits page. FHA also increased the loan limits for its Home Equity Conversion Mortgage (HECM), or reverse mortgage program, to $1,209,750 effective Jan. 1, 2025. The HECM program regulations do not allow loan limits to vary by MSA or county, so this limit applies to all mortgages regardless of location.
3 Brilliant Money Moves Many Retirees Don’t Know About
There is a time to work, a time to plan for retirement, and a time where you stop working to put that retirement plan into action. It might seem like a simple path forward, yet there truly is no one way to a successful retirement planning outcome. Some people are able to put 401(k)s and pensions together to make their cost of living work for them. Others are able to figure out how to manage a combination of Social Security, savings and alternative sources of income to stay afloat. For You: 4 Subtly Genius Moves All Wealthy People Make With Their Money All of these methods might seem tried and true, but there are a few other alternative tips and tricks that retirees can utilize to make their finances work for them. Here are three brilliant money moves that many retirees don’t know about (but should). Do a Roth IRA Conversion As Flavia Nunes, a wealth advisor at SteelPeak Wealth, broke it down: a Roth conversion is basically a way to move money from a traditional retirement account, like your IRA or your 401(K), to a Roth account. “With a Roth IRA, your funds will grow tax-free, and you will not have a required minimum distribution (RMD),” Nunes continued. “Think of a Roth conversion as a way to pay taxes upfront, so you can enjoy tax free withdrawals later.” “You are pre-paying in advance, at a potentially lower rate, to enjoy peace of mind withdrawals later, while still having the ability to forgo the withdrawal and leave the funds to continue to compound,” Nunes stated. Find Out: The New Retirement Problem Boomers Are Facing Move to a State That Does Not Tax Retirement Income If you are living in the United States, check to see if you are in a state where retirement income is not taxed — there are 13 of them in the nation. If you are not in one of those states, Jay Zigmont, the founder of Childfree Wealth, recommended moving to one. “Relocating to a state that does not tax retirement income is like giving yourself a raise,” Zigmont stated. “If you are currently living in California, where many people pay 9%+ in income tax, and you move to a no income tax state like Tennessee, you effectively made 9% more on your money each year, and lowered your cost of living.” Consider a Reverse Mortgage If you are a homeowner age 62 or older and need additional income, a reverse mortgage could be an option worth considering, in Nunes’ professional opinion. “The lender will look at your home’s value, your age and current interest rates to determine how much you would be able to borrow,” described Nunes. “You can then choose to take out a lump sum, or a line of credit — you can use this to cover monthly expenses,” Nunes added. “A reverse mortgage is a good way to tap into tax free income and avoid tapping into your cash flow during market downturns. It’s not for everyone, but may be a good solution instead of selling your home.” J. Arky
Boost Your Retirement: Top Income Sources When Social Security Falls Short
In just a few days, the first Social Security payments of 2025 will be distributed. Beneficiaries who have retired will see an increase of $49 from the previous month, bringing the average monthly benefit up to $1,976. Some recipients might receive even more, while the highest earners could see checks as large as $5,108 each month. However, many will discover that these funds don’t stretch as far as they might hope. Deductions such as Medicare Part B premiums and taxes on Social Security benefits will significantly reduce the amount many seniors actually receive, and despite a slowdown, inflation continues to erode purchasing power. To maintain a comfortable standard of living during retirement, it’s wise to have additional income streams beyond Social Security. Here are four viable options to consider. 1. Personal Savings Personal savings are a top choice for supplementing Social Security because you have direct access and control over these funds. If your savings are in a Roth account, you might also benefit from tax-free withdrawals, keeping your taxable income in retirement lower. If you are still employed, aim to save between 10% to 15% of your income for retirement. If that’s not feasible, save what you can and try to increase your savings rate when possible, such as after a salary increase or a reduction in expenses. For those already retired, contributing more to retirement accounts might not be an option. However, selecting the right investments to maximize returns without taking excessive risk is crucial. An often-recommended strategy is to subtract your age from 110 and invest that percentage of your portfolio in stocks, with the rest in bonds. Investing in low-fee index funds can help preserve more of your earnings from investments. 2. Part-Time Employment Not everyone wants to work during retirement, but having a part-time job can significantly bolster your finances if your savings are insufficient. Your income needs are likely lower than when you were fully employed, giving you the flexibility to choose work that you enjoy or that fits your schedule. If you own real estate, renting out property can provide a steady, more passive income stream. Ensure you are prepared for the responsibilities and costs associated with being a landlord before pursuing this option. 3. Reverse Mortgage For homeowners 62 or older with considerable equity in their homes, a reverse mortgage could be a good solution. This allows you to borrow against the equity in your home without needing to make payments as long as you live in the residence. The amount you can borrow will depend on your equity and current interest rates, and you can choose to receive the funds as a lump sum, in installments, or as a line of credit. While this can be a beneficial option for those with limited assets outside of their home equity, it’s important to consider the impact on potential inheritance. Any loan must be repaid upon passing away or moving out, which will reduce the value of the estate left to your heirs. 4. Additional Government Assistance Seniors with limited income might qualify for other governmental aid programs that can help cover essential expenses. Programs like the Supplemental Nutrition Assistance Program (SNAP) can assist with grocery costs, while Medicaid can cover certain medical expenses not handled by Medicare. Supplemental Security Income (SSI) is another benefit similar to Social Security but designed specifically for low-income seniors, as well as people who are blind or disabled. The maximum monthly benefit is $967 for an individual and $1,450 for a couple, but the actual amount depends on your financial situation and where you live, as many states offer additional supplements. Each government program has specific eligibility requirements which may change, so review these thoroughly and contact the respective program directly for clarification if needed. While not all of these income sources may appeal to you, utilizing even one can significantly enhance your financial security in retirement. If feasible, leveraging multiple options is even better, but make sure you fully understand each one’s implications. Published by Alice M. Carter
Social Security Not Enough to Make Ends Meet in 2025? 4 Other Retirement Income Sources to Consider
We’re just days away from the first Social Security checks of 2025. The average retiree will get $49 more compared to last month, bringing the average benefit to $1,976 per monthly check. Some people may see even larger increases, and the wealthiest beneficiaries will take home a whopping $5,108 per month. Yet many will find that this money doesn’t go as far as they expected. Medicare Part B premiums and Social Security benefit taxes will take a bite out of many seniors’ checks, and though inflation has slowed, it hasn’t stopped. You’ll have the best chance of staying comfortable in retirement if you have other sources of income to supplement your Social Security benefits. Consider the following four options. 1. Personal savings Obviously, personal savings are the ideal Social Security supplement, because you have complete control of these funds and they’re already in your possession. In the case of Roth savings, you may also be eligible for tax-free withdrawals, which could give you the money you need without raising your retirement tax bill. If you’re still working, you’ll ideally want to defer 10% to 15% of your income for retirement. But if you’re not able to save this much, it’s fine to set aside a smaller amount. Try to increase this later if you get a raise or some of your expenses drop. Those who are already retired may not be able to save more money in their retirement accounts. But you can choose your investments carefully to maximize your return. You don’t want to take too much risk, especially when you’re close to retirement, but you also don’t want to be too conservative and settle for little to no return. One general rule of thumb is to subtract your age from 110. The resulting number should be the percentage of your portfolio that you invest in stocks. Put the remainder of your portfolio in bonds. Consider investing at least some of the stock portion of your portfolio in low-fee investments, like index funds, to help you hold on to more of your gains. 2. A part-time job Working in retirement doesn’t appeal to everyone, but the steady paycheck can be invaluable if you lack adequate personal savings. You may not need as much income as you did during your working years, because you’ll have Social Security and your expenses might decrease slightly as you age. This gives you greater flexibility to choose a job that aligns with your interests and your schedule. If you own property, you could consider renting it out for a relatively passive source of income. However, make sure you’re comfortable with the costs and duties that come with being a landlord before you pursue this option. 3. A reverse mortgage A reverse mortgage is a possibility for seniors with substantial equity in their homes. It essentially enables you to borrow against your equity, and you aren’t required to make any payments while you’re still alive as long as you live in the house. The exact amount you can borrow depends on how much equity you have and current interest rates. You may be able to take the money out in a lump sum, in installments, or as a line of credit you can draw upon as needed. However, this is only available to homeowners 62 and older, and you typically need to have at least 50% equity in the home. There are closing costs and other fees, and you’ll still be responsible for maintaining the property and paying the property taxes and homeowners insurance. It’s a solid option for those who have few assets other than their home. But it might not be the right move if you intend to pass the property on to your heirs someday. After you pass away or move out of the home, you or your estate will have to repay the loan. This will reduce how much your heirs receive. 4. Other government benefits Low-income seniors may be eligible for other government benefits that can help them meet their basic needs. For example, Supplemental Nutrition Assistance Program (SNAP) benefits can help you buy groceries, and Medicaid can help you with some healthcare costs Medicare may not cover. You may also be eligible for Supplemental Security Income (SSI). This is a monthly benefit similar to Social Security that’s available to blind and disabled people, as well as low-income seniors. The federal maximum is $967 per month for a qualifying individual and $1,450 per month for a qualifying couple. However, the exact amount you’ll get depends on your income and assets, as well as where you live. Many states supplement the SSI benefits of their residents. Every government program has its own eligibility criteria, and these can change over time. Review these carefully before you apply. Reach out to the program for clarification if you’re unsure whether you qualify. These income sources may not all appeal to you, and that’s fine. Even one of them can make a significant difference to your financial security. If you take advantage of more than one, all the better. Just make sure you understand the consequences of each choice before you make it. By Kailey Hagen – Jan 5, 2025 at 4:45AM
They even do it in the land down under!!
How your home could help fund a more comfortable retirement Accessing the equity in your home can provide the extra funds to live your best retirement. Picture iStock This is branded content for Inviva. More and more, Australians over 55 are finding it difficult to rely solely on their pension or superannuation savings to enjoy the retirement they’ve worked hard to achieve. Rising living costs mean many lack the funds needed to support their retirement dreams of a full and happy life free from financial worries. For many of these retirees, their home is their largest asset, but tapping into that wealth without selling the property can be challenging. That’s where equity release comes in. A home equity release loan, also known as a reverse mortgage, allows you to convert some of your home’s value into cash for other purposes – renovations, travel, funding in-home care, helping family or simply meeting day to day living expenses – all without needing to sell the property or downsize. The loans can usually be accessed as a lump sum, regular income or a line of credit as and when needed. And with this kind of loan you get the benefits of being able to access those funds but always retain full ownership of the property so you can enjoy any potential property appreciation, all while staying in the community that you know and love. Murray, 72, and Margaret, 68*, a retired couple from Castle Hill in New South Wales, recently discovered the benefits of a home equity release loan after they found themselves in the predicament of worrying about having enough money to live comfortably on. While they had built up a reasonable nest egg, they’d realized their existing retirement savings, and the pension were insufficient to cover their daily expenses and maintain their desired lifestyle. Rising living costs meant their current retirement income was not enough to allow them to enjoy the activities they had hoped to pursue. That’s when they decided to investigate if a home equity release loan might be the answer. After consulting a financial adviser about their options, Murray and Margaret approached reverse mortgage specialist Inviva for a loan secured against their Castle Hill home. They arranged to receive a regular income stream of $3,000 per month, which would last for eight years, by which time they expected they would be ready to downsize and pay back the loan. The couple said the additional income provided the financial stability they needed, allowing them to travel each year, engage in some new hobbies, and spend quality time with their grandchildren. “Using the equity in our home to improve our lifestyle was one of the best decisions we made for our retirement,” Margaret said. Home equity loans give people the ability to do more of the things they love. Picture iStock “The extra money each month has given us the financial freedom to enjoy our lives without worrying about money. We can travel, spend time with our grandchildren, and we stay living in the area we know and love.” Andre Karney, the CEO of Inviva, said the company’s goal was to help customers unlock the wealth they have built up in property so they can enjoy a more comfortable and fulfilling retirement, in the home they love. “By releasing home equity, they aren’t forced to downsize before they are ready and can free up cash to enjoy retirement on their terms,” he said. While lots of people are taking advantage of the benefits of tapping into their home’s equity there are still some misconceptions and concerns that stop some home owners from considering the option. “One of the fears people still have is that they risk losing their home with a home equity loan,” said Mr Karney. “But, unlike the reverse mortgages of old, today’s home equity release loans are now heavily government-regulated and come with lots of protections. “They include features such as a no negative equity guarantee where you can never owe more than the value of the property, and the lifetime occupancy guarantee which means that if the security property is the home you live in and you’re not in breach of your loan obligations, you and your co-borrowers can’t be removed from the property until you are ready. “Plus there’s the flexibility that means you have the choice whether to make no repayments for the life of the loan or to repay all or part of the loan at any time. It’s up to you and what suits you best.”
What’s the best home equity borrowing option right now?
There are multiple attractive ways to borrow from your home equity right now. / Credit: Getty Images Inflation is almost at the Federal Reserve’s target 2% goal. Unemployment figures are low. And interest rates were just cut for the first time in more than four years. It’s clear that the economic climate is changing again and both savers and borrowers need to be prepared for it. While cost-effective borrowing options are still scarce – it will take time for these developments to reverberate through the wider rate climate – there are still some that make sense now. Home equity borrowing is one of them. Right now, homeowners have approximately $330,000 worth of home equity, on average. And they can access it via a variety of inexpensive ways. But the interest rate a home equity borrowing product comes with isn’t (and shouldn’t be) the only factor worth considering now. Instead, borrowers should take a more complete look at their options before acting. But what is the best home equity borrowing option right now? That’s what we’ll help answer below. See how low of a home equity loan rate you could secure here. What’s the best home equity borrowing option right now? While the “best” home equity borrowing option will be relative to the individual homeowner, there’s a compelling case to be made for each of the following: Home equity loans Home equity loans come with some of the lowest interest rates around right now – just 8.36%, compared to nearly 13% for personal loans and a dramatic 23% for credit cards. And, if used for eligible home repairs and renovations, you’ll be able to deduct this minimal interest when you file your taxes next spring. Who is it best for right now? Home equity loans are best right now for those homeowners who are looking to access their equity at the lowest cost possible but don’t have the ability to weather the risk that variable rate home equity lines of credit (HELOCs) come with. Since home equity loan interest rates are fixed, borrowers will know exactly what their monthly costs will be for the full repayment period. And, if rates fall significantly during that time, they can refinance to the lower rate. HELOCs HELOCs work the same way credit cards do in the sense that they provide the borrower a revolving line of credit to utilize. While HELOC interest rates are slightly higher than home equity loans (averaging 8.73% currently), it may not matter much longer. HELOC rates are variable and subject to change monthly, which is a major advantage in today’s cooling rate climate (no refinancing required). They also come with the same tax benefits that home equity loans do. Who is it best for right now? Right now, a HELOC is best for a borrower looking to capitalize on future rate cuts without having to wait for those cuts to be formally issued, since the rate will adjust independently without action on behalf of the homeowner. HELOCs are also generally better for those homeowners who can afford the inherent risk of a variable rate as they can rise as easily as they can fall. Reverse mortgages Reverse mortgages allow homeowners to rearrange the normal borrowing flow. Instead of repaying a lender the money borrowed from the accumulated home equity, those who take out a reverse mortgage will receive monthly payments to use as they see fit. This will still reduce the home equity, but it will only need to be repaid if the owner sells the property in question or dies. Who is it best for right now? This is an easy one: seniors. Homeowners age 62 and older are the only ones who can qualify for this borrowing option (with rare exceptions). Still, it’s critical to remember that every dollar borrowed will be deducted from your equity (with interest), so be careful with how much you ultimately decide to withdraw. What about cash-out refinancing? In a different rate climate, cash-out refinancing could be beneficial for homeowners. This occurs when you take out a new mortgage loan in an amount larger than your current one. You then use the former to pay off the latter and take the difference between the two as cash for yourself. But that trade-off involves swapping mortgage interest rates. While that would’ve been hardly noticeable in 2020 and 2021, for example, it could be a significant trade-off now, particularly with average mortgage rates still in the low 6% range. So, consider this option, just maybe not right now. The bottom line Home equity loans, HELOCs and reverse mortgages could all be the “best” home equity borrowing option now depending on your financial needs and circumstances, so consider all three. But be cautious with how much you ultimately decide to withdraw, as your home should not be viewed as an endless source of funding. If you can’t pay back what you borrowed, you could risk losing it altogether. Story by Matt Richardson
How to Uncover the Social Security Time Bomb
Many older homeowners across the nation are anticipating a modest increase in their Social Security benefits. The 2025 cost of living adjustment (COLA) for Social Security is projected to be around 2.5%, but will that be enough to cover the growing financial strain faced by seniors? Unfortunately, the answer is often “no.” How COLAs Are Determined The Social Security Administration (SSA) calculates COLAs using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks the prices of various goods to measure inflation, but it doesn’t always reflect the specific costs that impact retirees the most. Why COLAs Fall Short The CPI-W tends to underrepresent key expenses for older Americans, such as rising homeowner’s insurance, property taxes, and prescription drugs. In 2024 alone, these costs increased significantly: 21% for homeowner’s insurance, 19% for property taxes, and 5% for prescription drugs. However, Social Security COLAs haven’t kept pace with such surges. From 2020 to 2024, COLAs increased by 1.3% (2020), 5.9% (2021), 8.7% (2022), 3.2% (2023), and the projected 2.5% for 2024. A retiree who received $1,800 a month in 2019 would see an increase to $2,220 by 2024—an improvement, but not enough to keep up with overall living costs. Erosion of Purchasing Power Despite these adjustments, Social Security benefits have lost considerable purchasing power. As previously reported on HECMWorld a 2024 report by the Senior Citizens League found that Social Security benefits have lost around 20% of their purchasing power since 2010. For upper and middle-income retirees, Social Security represents around 30-40% of their total income, while for lower-income seniors, it can account for up to 90% of their income. As inflation outpaces these adjustments, many retirees are left with tough financial decisions. Exposing the Math of Inflation Reverse mortgage professionals can help uncover the pain of true inflation outpacing a retiree’s income with a few short questions such as: Comparing these rising costs to COLA increases often reveals a shortfall. This gap forces retirees to make tough decisions: downsize, withdraw more from retirement accounts, cut expenses, or even use credit cards. Grief Isn’t Just Emotional-It’s Financial The loss of one’s spouse is one of the most painful experiences an individual will face. However, the pain of loss goes far beyond the loss of companionship. If grieving isn’t enough of a burden surviving spouses are likely to face a significant cut in monthly Social Security income despite having reached full retirement age. For example, a husband receives a monthly benefit of $2,300 and his wife brings in $1,850. After the husband’s death, the wife is entitled to survivor benefits but not her own. The surviving spouse in this example would likely receive the higher of the two benefits but her benefit would stop. That means her monthly income will decrease by $22,200 a year! by Shannon Hicks
HECMs Can Address These 3 Retirement Risks
It’s common for retirees seeking to secure their financial future to encounter significant risks. Typical concerns include paying for long-term care, managing cash flow, and accessing equity to supplement income or cover expenses. A Home Equity Conversion Mortgage (HECM) reverse mortgage is a powerful tool that may help retirees address these challenges effectively without negatively impacting their cash flow. Here’s how a HECM reverse mortgage could solve three major retirement problems: 1. Paying for Long-Term Care: A Flexible Alternative to Insurance LawforSeniors.org notes, “Premiums for LTCI are relatively high. The average premium is $3,000 to $6,000 per year, depending on age, sex, health, the maximum daily benefit, the benefit period, and the elimination period (or how long the policyholder must wait before benefits are paid)”. Furthermore, premiums are not fixed and increase over time. Additionally, retirees may be unable to qualify for LTCI due to health conditions or age. This is where an FHA HECM reverse mortgage provides a unique solution. By tapping into their housing wealth older homeowners can use the proceeds from a reverse mortgage to cover LTC expenses as they arise. Here’s how: Directly pay for care: Instead of paying premiums for LTCI, retirees could draw from their HECM line of credit to fund home healthcare, assisted living, or nursing home care. This offers flexibility, allowing retirees to only pay for care when needed, avoiding ongoing insurance premiums that may not provide immediate value. Redirected Payments: Also, homeowners with significant mortgage payments could leverage their extra cash flow by eliminating their required mortgage and applying those former payments to an account earmarked for future long-term care expenses. Fund LTCI premiums: For those who prefer to obtain or continue LTCI coverage, reverse mortgage proceeds can also be used to pay for insurance premiums. This removes the strain on monthly income, helping retirees maintain their LTCI policy and mitigating the impact on their retirement budget. In both cases, a reverse mortgage allows retirees to access their home equity without selling the home, offering peace of mind that long-term care needs can be addressed without depleting savings or cutting into other retirement resources. 2. Using a Reverse Mortgage Line of Credit vs. a Traditional HELOC Many retirees use a Home Equity Line of Credit (HELOC) to access funds during retirement. However, HELOCs come with several drawbacks, including required monthly payments and the potential for lenders to freeze or reduce the credit line. In addition, HELOC payments increase after the draw period at which point the outstanding balance is fully amortized. A HECM reverse mortgage line of credit, on the other hand, offers several advantages over a traditional HELOC: By choosing a reverse mortgage line of credit instead of a HELOC, retirees can secure a stable, flexible source of funds without the burden of monthly payments or the risk of losing access to their credit line*. 3. Creating Additional Monthly Cash Flow For retirees facing a cash flow shortfall, a reverse mortgage can serve as an effective solution to supplement their income. The HECM reverse mortgage offers several payout options that can provide retirees with additional monthly cash flow: Monthly tenure payments: Retirees can opt for monthly payments from the reverse mortgage, which will continue as long as they live in the home. This option effectively turns housing wealth into a steady source of cash flow, reducing the need to draw down other assets like savings or investments. Tenure payments may be ideal for borrowers who are prone to overspending or have a history of poor money management. Term payments: For those who need additional cash flow for a specific period (e.g., during the early years of retirement), reverse mortgage term payments offer a fixed monthly amount for a set number of years. This can provide a reliable stream of cash flow during a time when expenses may be higher or other income sources are still developing. The Hybrid Plan: Retirees can also combine a monthly payment option with a line of credit, allowing them to access additional funds as needed while receiving a predictable monthly payout. This flexibility enables retirees to tailor their reverse mortgage to their unique financial situation. Closing Thoughts Understanding your potential borrower’s financial situation is key to uncovering these three common retirement pitfalls. Knowing this reverse mortgage professionals can then focus on providing solutions that build value instead of merely ‘selling’ a loan. Whether covering long-term care expenses, replacing a traditional HELOC, or creating additional monthly cash flow, a reverse mortgage offers flexibility and security. By Shannon Hicks