I’m a Real Estate Agent: Here Are the 8 Best Ways To Fund Your Renovations During Retirement
You’ve decided you want to stay long-term in your current home, and perhaps even make it your “forever home.” But to make aging in place more comfortable, you want to renovate. How do you pay for them as a retiree? The good news is that you have plenty of options, which is also the bad news. Consider the pros and cons of each option to fund home renovations in retirement. 1. Grants & Specialty Loans for Seniors The best way to pay for home renovations is, well, not to pay at all. Let someone else pay for it. Rhett Stubbendeck, founder of financial planning firm Leverage, points out that you may have more options than you realize. “Check out government programs and grants. There are many available, especially for accessibility upgrades. At Leverage, we’ve helped clients secure these funds to reduce out-of-pocket costs.” Don’t stop at federal programs, either. Many of the most generous programs operate at the state or local level. In particular, many of these programs help cover the cost of age-related accessibility or energy efficiency upgrades. Get creative in combining these together. If you can’t find a grant, you may find a subsidized loan program to help you score a low-interest, low-fee loan to cover the home improvement costs. 2. Cash Could you pull together enough cash to cover most of the renovation costs? Avoid taking on fresh debts in retirement if you can. Look under every proverbial cash cushion to see if you can cobble together the funds. “Paying in cash is the best choice if it doesn’t interfere with other financial goals or exceed your budget,” advises Michael Kotler, a Realtor in Hoboken New Jersey, If you can get most of the way there with cash, you may be able to close the gap with credit cards. 3. Credit Cards It sounds unconventional, and it is. But paying for home upgrades by credit card can still potentially save you money over HELOCs, home equity loans, and refinancing (more on those shortly). “When you borrow a home loan or home equity line of credit, it’s secured by a lien,” explains Luke Babich of Clever Real Estate“ That requires a title search and a formal loan settlement, which often add up to over a thousand dollars in fees. And that says nothing of lender fees, which rack up quickly. “Sure, you’ll pay higher interest rates on credit card debt than a HELOC. But if you can pay off the card balances relatively quickly, the higher interest could still cost you far less than the thousands in settlement costs.” Some credit cards offer introductory 0% APR periods as well, perhaps giving you up to 18 months to pay off the balance interest-free. Bear in mind that you can pay for materials yourself, directly on your credit card, and many contractors accept credit card payments if you pay a convenience fee. 4. Personal Loans Another unconventional financing option includes personal loans. Like credit cards, they charge higher interest than secured loans but let you avoid expensive settlement fees. “Personal loans are also an option, especially for smaller projects,” points out Stubbendeck. “They don’t use your home as collateral, making them simpler but typically with higher interest rates.” 5. HELOCs A home equity line of credit or HELOC offers a flexible funding source. You can draw on it as needed, and pay it back at your own pace (at least until it rolls over to a fixed repayment term). Real estate agent Michael Kotler explains further. “If you’re not sure what the total renovations costs will be, a HELOC, or home equity line of credit, may be the best choice, as it lets you withdraw funds as needed, and you can make minimum monthly payments on the amount you borrow.” 6. Home Equity Loans Kotler continues: “Conversely, a home equity loan may be best if you know the exact cost of your project, as it provides a lump sum upfront.” Home equity loans usually take the form of second mortgages if you already have a first mortgage against the property. Just beware that you do incur settlement fees, as outlined above. 7. Cash-Out Refinancing “A third option using your home’s equity is a cash-out refinance, especially if the mortgage interest rate is lower than your current mortgage,” says Kotler. “If you need a large loan and plan to stay in your home long term this may be for you. You take on a larger loan, pay off the existing mortgage, and get a new one which gives you cash to pay for the renovations.” Expect higher lender fees however. Lender points equal one percent of the loan amount — a much higher figure when you refinance your entire mortgage. Also beware that you extend your debt horizon many years into the future. 8. Reverse Mortgages If you plan to stay in the home forever, and don’t want the burden of a mortgage payment, you can borrow money with a reverse mortgage. “For retirees over 62, a reverse mortgage can be a smart choice,” notes Stubbendeck. “It allows you to access your home equity without monthly repayments. This is perfect if you plan to stay in your home for a long time.” Reverse mortgages come with their quirks, so make sure you understand the terms before signing on the dotted line. You could receive a lump sum upfront, ongoing monthly payments from the lender or a combination of the two. Get clear on when monthly payments will end and what you can otherwise expect — and what the lender expects from you. Final Thoughts Debt is a tool, and like any tool, you can use it to your advantage or cut yourself with it. When in doubt, get help from a financial advisor. The last thing you want to do is saddle yourself with an expensive debt burden in retirement, no matter how nice that new kitchen might look. Written by G. Brian Davis
Beyond the Basics: 10 Powerful Benefits of Reverse Mortgages You Didn’t Know About
Unlocking more than just cash and explore the unexpected advantages of reverse mortgages for a secure retirement What would retirement be like if you didn’t have to make a monthly loan payment? Imagine the financial freedom you could achieve if you no longer had to make a monthly mortgage payment. Reverse mortgages can be strategically utilized to manage and reduce debt obligations, enabling retirees to maintain financial stability and enhance their lifestyle. Understanding the Growing Debt Burden According to the Consumer Financial Protection Bureau, an increasing number of retirees carry mortgage debt into their retirement years. Some studies estimate that 50-68% of new retirees will have some form of loan payment, including home equity loans and lines of credit. For the mass-affluent baby boomer demographic, this percentage might be even higher. Consider the last social gathering you attended where you spoke with homeowners over the age of 55. How many of them had a mortgage, home equity loan or line of credit against their property? It’s likely that a significant portion of them did. In fact, it wouldn’t be surprising if the number was somewhere between 75-99%. This highlights the prevalent issue of mortgage debt among older homeowners, making the case for exploring debt management strategies such as reverse mortgages. For retirees aged 75 and older, housing expenses, including mortgages, property taxes, insurance, utilities and home maintenance, account for a substantial 43% of their monthly spending. With low savings rates, longer life expectancies and global uncertainty, eliminating a monthly mortgage payment and creating additional cash flow could be a considerable relief. Reverse Mortgages: A Brief Overview A reverse mortgage is a loan available to homeowners aged 62 or older, allowing them to convert a portion of their home’s value into tax-free dollars without giving up home ownership or title and without making monthly loan payments. The loan amount is based on the age of the youngest borrower, the home’s value and current interest rates. This is important: a reverse mortgage must be the first mortgage on the property, meaning any existing loans must be paid off with the reverse mortgage proceeds before the homeowner can access the remaining funds. Today, let’s consider the impact of eliminating a mandatory monthly mortgage payment. Case Study: Pierce and Linda Meet Pierce and Linda, a 65-year-old couple planning to retire at the end of the year. Here are their financial details: They are concerned about running out of savings or having to cut back on their lifestyle to make their savings last. While researching their retirement success rate, Pierce and Linda discovered that many financial advisors and online calculators suggest a safe initial withdrawal rate of around 4%, which for them would be $26,000 per year instead of $45,000. This realization was disappointing, but it prompted them to explore alternative options. Through further research, Pierce and Linda decided to consider a reverse mortgage to see if it could work for them. Although they are fully comfortable making their monthly payment, they want to explore all possibilities, especially if it could increase the amount of spending they could enjoy without jeopardizing their nest egg. During their research, they encountered two thought-provoking questions: These questions led them to consider a reverse mortgage as a viable option to enhance their retirement plan. The Reverse Mortgage Solution Based on their ages, home value and current interest rates, Pierce and Linda qualify for a reverse mortgage of $216,300. After paying off their $200,000 mortgage, they have a remaining line of credit of $16,300. Let’s explore 10 retirement-enhancing benefits of eliminating their mandatory monthly loan payment. 1. Extending Retirement Savings Years ago, my friend and mentor Ed Slott, CPA, asked me: “How much money does a client save when they use a reverse mortgage to eliminate their existing payments?” Initially, I thought the answer was obvious: in the case of Pierce and Linda, they would save $1,750 a month. “Not necessarily,” he replied. What he explained next was eye-opening. Eliminating a $1,750 monthly mortgage payment translates to significant savings for retirees like Pierce and Linda. With $650,000 in tax-deferred accounts like IRAs or 401(k)s, they would need to withdraw approximately $2,250 monthly (considering taxes) to net the $1,750 needed to cover their mortgage payment. By using a reverse mortgage to eliminate this payment, they retain around $27,000 annually in their savings ($2,250 x 12). This substantial retention can significantly extend the longevity of their retirement funds, ensuring greater financial stability throughout their retirement years. By leveraging a reverse mortgage to eliminate their monthly mortgage payments, Pierce and Linda can preserve their savings, potentially extending their retirement funds significantly, providing them with greater financial security and peace of mind. 2. Reducing Income Taxes By retaining nearly $27,000 in pre-tax dollars, Pierce and Linda not only lower their income taxes but also reduce their provisional income, which could prevent their Social Security benefits from being taxed. 3. Bridging the Budget Gap Initially, Pierce and Linda desired an annual withdrawal of $45,000 but considered a more conservative $26,000. The $19,000 difference can be bridged by the reverse mortgage. By eliminating their mortgage payment, they free up $27,000 per year in pretax dollars. Meaning they only need to withdraw around $18,000 from their retirement accounts in the first year. Looks like they can use the additional dollars per month to enhance their lifestyle, travel and enjoy the go-go years of retirement. In other words, they can have their cake and eat it too! 4. Supporting Grandchildren’s Education With the extra $1,750 per month saved from the reverse mortgage, Pierce and Linda could contribute to their grandchildren’s education. This money could provide a monthly tuition stipend, a gift or even a low-interest loan, offering significant financial support and creating a lasting legacy. The rising costs of higher education can be a burden on younger generations, and this contribution can make a meaningful impact on their grandchildren’s lives and futures. 5. Funding Life Insurance Policies The monthly savings can be directed toward purchasing cash value life insurance policies
Unlocking financial freedom: How home equity release is transforming retirement planning in America
Over the last few years, the financial landscape has undergone a major shift, with the cost of living crisis casting a shadow on the traditional notions of financial security in retirement. From skyrocketing house prices to rising costs of healthcare and everyday essentials, the gap between what seniors want and what is realistic when it comes to aging in place is growing significantly. Research has found that if given the choice, 85 per cent of seniors would prefer to age in place. Meaning it’s time to acknowledge the new reality they are facing and equip them with the tools they need to make informed decisions about their financial future from planning pre- and post-retirement. The reverse mortgage One often misunderstood solution is the reverse mortgage. A reverse mortgage helps homeowners over the age of 55 age in place by providing them access to equity in their home to support general or unexpected expenses, give a living inheritance to their loved ones, or fund home renovations. Empowering aging in place A reverse mortgage can be a lifeline for homeowners 55 and above, offering them the means to age in place gracefully. Contrary to traditional mortgages, it doesn’t burden them with monthly payments. Instead, it furnishes tax-free funds, with interest accruing over time and the loan becoming due upon the homeowner’s passing or decision to sell. Crucially, beneficiaries still retain access to vital benefits such as Social Security. Meeting diverse needs The beauty of a reverse mortgage lies in its versatility. For homeowners burdened with monthly mortgage payments, it liberates them from this financial strain, putting more money back in their pockets. Others may utilize the funds for renovations, supporting their children or addressing unexpected expenses. It’s a flexible tool tailored to meet the unique needs of each individual client. Addressing retirement concerns In today’s economic landscape, retirement planning is fraught with concerns about rising costs and dwindling savings. A study done earlier this year underscores this apprehension, with 67 per cent of homeowners aged 55 and above expressing worries about maintaining their lifestyle throughout retirement. Real estate is often their most valuable asset, presenting a viable opportunity. With property prices where they are, tapping into home equity sustainably and responsibly has become a major source of financial relief for those who are “house rich” but still struggling to live the comfortable retirement they desire. Common misconceptions Despite the benefits, reverse mortgages are often surrounded by negative myths and misconceptions. Let’s set the record straight. Myth: You no longer own your home with a reverse mortgage. Reality: With a reverse mortgage, homeowners retain 100 per cent ownership of their property. Myth: You may owe more than what your home is worth. Reality: Legitimate reverse mortgage providers offer a no-negative-equity guarantee, which ensures that homeowners or their heirs will never owe more than the fair market value of the home. Myth: Your children will lose the family home. Reality: The estate retains ownership of the home, offering heirs the opportunity to refinance or settle the mortgage through alternative means. Myth: There will be no equity in the home to give to your heirs. Reality: Despite the loan balance, homeowners or their heirs often retain considerable equity, especially in a rising home price environment.
HELOCs only add to the problem
Core Logic reports that the average homeowner is sitting on about $300,000 in equity. A tidy sum for most whose home represents their largest asset. With more older homeowners struggling to pay their monthly obligations the question arises- should seniors use their homes to pay their bills? Downsizing: A realistic option? In such circumstances, many financial pundits suggest that selling the home and downsizing may be the best choice. It may very well be for those who may find themselves struggling to maintain their property or who live in an area with a higher cost of living. “If you really want to use your home equity in the best way possible, selling the home and downsizing would be the way to go”, said Jay Garvens, business development manager at Churchill Mortgage in a recent CBS Money Watch column. “Simply sell the house, take the cash, and move to a more affordable community. You would then have enough money left over to pay your bills for the remainder of your retirement years”, says Garens. But is it really that simple? Not exactly. Older homeowners with an existing mortgage who want to sell and downsize are likely to find their new mortgage payment is not substantially less than the mortgage payment they have today thanks to the average 30-year mortgage rate being more than double what it was three years ago. This begs the question of what is the best way for an older homeowner to extract equity from their home without increasing their already burdensome debt load? HELOCs only add to the problem Some may opt for a Home Equity Line of Credit (HELOC) to get the funds needed to cover their monthly expenses. The problem is HELOCs require monthly payments which will increase after the loan’s initial draw period ends. This leaves the homeowner in a worse position having yet another bill to pay each month undermining their need to increase cash flow to meet their monthly obligations. This is where the desire and accessibility to cash can lead to short-term thinking with long-term financial consequences. The no-payment, optional payment loan“If there are no other assets to access, a reverse mortgage can be a way to maintain retirement,” David Orsolino, a financial advisor at Strategies for Wealth told CBS Money Watch. “This will allow for tax-free income and allow you to remain in the home.” Actually, it’s tax-free loan proceeds which are typically not taxed like income. Any additional source of income is subject to federal or state income taxes. Yet, Mr. Orsolino is correct that reverse mortgages can help older homeowners maintain their standard of living in retirement. Wanting to bequest the home to adult children is admirable but should be done knowing that 70% of adult children plan to sell the home they inherit according to a Charles Schwab survey. In such situations, the pragmatism of selling the home overcomes any sentimental misgivings the children may have of keeping their childhood home. Older homeowners struggling to pay their monthly bills should consider the following questions:If I don’t tap into my home equity will we be a financial burden to our children? Does selling and relocating to a new home make financial sense? Would getting a HELOC to access cash be the best choice when it only adds to my monthly payments? Do I want to return to work? If so, am I mentally and physically prepared to do so? Would my children prefer that we live comfortably and be financially independent instead of inheriting the home? Not everyone has the equity required to qualify for a reverse mortgage. But for those who do the flexibility of the loan and the boost to their monthly cash flow may be just the answer they’ve been looking for. By Shannon Hicks
Why equity-tapping challenges may make reverse mortgages ‘inevitable’
Tapping into home equity, particularly for people in or near retirement, can be challenging — especially for those who may have a pressing need. Traditional equity-tapping methods — such as selling the home or taking out a home equity loan — could present lifestyle challenges, which is where alternative options like reverse mortgages can come into play. But these products also come with their own challenges, according to a column published recently by The New York Times. Older homeowners may contemplate the traditional methods, but depending on the person, they may be out of the question, according to financial columnist Ron Lieber. “Your home may be just the way you like it, because you built it that way or spent decades fixing it up,” the column explained. “If you’re attached to local doctors or a house of worship, it is difficult to cut ties and move away. Clearing out years of belongings is a total pain. And an appropriate and affordable new place — no steps, minimal maintenance — may simply not exist wherever you want to be.” Interest rates also further complicate matters if the homeowner has a more beneficial mortgage rate than is available today. And many seniors who hope to leave their home to an heir may find other challenges tied to the idea of selling. “That brings us to reverse mortgages,” Lieber wrote. “With this product, eligible people 62 and older can extract equity in a variety of ways, say through a lump sum. Interest accrues in the background, and the balance of the reverse mortgage goes up instead of down, the way a normal mortgage would. You generally pay off the mortgage when the home is no longer your principal residence.” But most people “reject reverse mortgages,” according to the column. “Lenders have rarely underwritten more than 100,000 federally insured ones in any fiscal year, and that hasn’t happened since 2009,” Lieber wrote. “Many older people remember scandals involving the products, when borrowers felt misled and surviving spouses or heirs could not keep the homes. New federal protections helped clean things up.” Considering the demographic realities, however, it may not be possible to avoid products like them. “Reverse mortgages or something like them seem inevitable in a nation where individuals are entirely responsible for their own retirement savings,” the column explained. “One good test for their utility is this: Do any financial advisers who pledge to act only in the best interest of their clients help members of their own family borrow in this way?” One financial planner — Jeremy Eppley of Owings Mills, Maryland — shared the story about why he recommended the product to a client. His aunt owns her home free and clear, but inflation has encroached on her fixed income in retirement. A reverse mortgage helped improve the quality of her life, Eppley told the Times. “I’d never heard of her going on vacation,” he said. “She could live a little.” Other companies are engineering alternatives for tapping home equity, like shared equity investment products or sale leasebacks. But the core issue of the way that retirement financing is structured in the U.S. may necessitate a broader adoption of home equity-tapping tools, the column said. “With home equity, we may have tipped too far into seeing homes as totems of a financial life well and conservatively lived,” Lieber wrote. “Homes are trophies, sure. But their equity is also a tool. Absent any radically improved government safety net, people without much savings are going to need more ways to extract it.” Chris Clow
When is a reverse mortgage the best home equity option? Experts weigh in
Inflation continues to strain the economy and American household budgets with higher prices at the gas pump, grocery store and other everyday purchases. As a result, many are taking on extra jobs and side hustles to make ends meet. Along the same lines, many Americans are exploring alternative sources of income to cushion their finances. Homeowners, for example, may be able tap into their existing home equity to pay bills, fund a home renovation or cover a large unexpected expense. One home equity option many older homeowners are considering is a reverse mortgage, which allows them to convert some of their home’s equity into cash to pay down high-interest debt or improve their financial security during retirement. As you might expect, a reverse mortgage differs from other home equity products like home equity loans and lines of credit (HELOCs). Below, we’ll break down when a reverse mortgage can be a beneficial home equity option. When is a reverse mortgage the best home equity option? Here’s when this may be the best home equity choice for you, according to the experts we spoke to. When you’re a senior and eligible A reverse mortgage can be an excellent option for seniors to unlock their home equity and supplement their retirement income. As Sarah Alvarez, vice president of Mortgage Banking at William Raveis Mortgage, notes, “the number one reason borrowers get a reverse mortgage is because there is no monthly mortgage payment until the borrower no longer occupies the home as their principal residence.” Among other reverse mortgage eligibility requirements, you must be at least 62 years old, own a single-family home or other eligible property and live in the home as your primary residence. You also must have at least 50% equity in your home and must be able to afford ongoing property taxes, maintenance and other house-related expenses. But if you qualify, a reverse mortgage may be more beneficial than other home equity products, depending on your situation. If you are already retired and no longer have a regular income, a reverse mortgage would be best, as there are no income requirements or monthly payments necessary, However, the closing costs and fees may be higher than those of an HELOC. When you don’t plan to leave your home to heirs A reverse mortgage might be worth it if you don’t have beneficiaries who stand to inherit your home. That’s because reverse mortgages are paid off once you sell the home, which often happens after you die. Keep in mind, your heirs aren’t responsible for the debt. However, if they want to sell the home, they must pay off the reverse mortgage first and before receiving any remaining proceeds. “If you don’t plan to leave your house to heirs, or if you don’t have any heirs at all, a reverse mortgage can be a practical solution if you’re 62 or older and need cash,” notes Eric Croak, CFP and president at Croak Capital. “It allows you to utilize the equity in your home, and there’s no reason not to enjoy the value you’ve built up in your property.” When you want to live in your house long term A recent Redfin survey revealed that 78% of older American homeowners are committed to staying in current homes. If you plan on staying put in your home as you grow older, a reverse mortgage can help you tap into your home equity for supplemental cash in retirement. On the other hand, taking out a reverse mortgage makes little sense if you plan to move in the near future. Remember, you must repay a reverse mortgage once you move out of your home so a near-term move means you’d have little time to enjoy the benefits of the reverse mortgage before you have to pay it back. When you get a reverse mortgage, you can typically qualify to receive around 40% to 60% of your home’s appreciated value, which may not last indefinitely. “If you take out a reverse mortgage hoping to have income from your home equity for the rest of your life, consider that you don’t know how long you will live,” Croak notes. “If you outlive your mortgage, the upside is that you don’t have to leave your home, even though you stop receiving payments from the lender. The downside is you’ll still have all the costs of owning a home, plus your other living expenses and bills. This could mean you might have to sell the home and get whatever money you can from it.” The bottom line While reverse mortgages can be a wise option to increase your financial security in retirement, they’re not without drawbacks. Consider your financial situation and long-term goals carefully before proceeding. For example, you might not opt for a reverse mortgage if you’d struggle keeping up property taxes, homeowners association and other homeownership costs. If you can’t, If you don’t, or if you move out of the home for 12 months or longer, you may have to repay the reverse mortgage. “When it is determined that the borrower no longer occupies the home as their principal residence, what is borrowed plus interest is due to the lender,” says Alvarez. “This is a complex product, and it is important to make sure you fully understand the implications, but it can be a great solution to help someone remain in their home.” By Tim Maxwell
A reverse mortgage may be the solution for younger cash-strapped would-be homebuyers.
Home affordability has reached its worst level since 1984. Today the average mortgage payment requires 38% of the median household income showing housing affordability has deteriorated to its lowest level since the mid-1980s according to Black Knight. With home prices generally still at their post-pandemic highs and the average 30-year fixed-rate mortgage hovering around 7.24% would-be homebuyers are pushed to the sidelines. To afford a median-priced home of $400,000, homebuyers would need an annual household income of $110,871, according to Bankrate’s Housing and Income Study. Bankrate’s February 2024 Down Payment Survey found more than half of would-be homeowners (54 percent) said their incomes were not high enough to afford the required down payment or closing costs. But it’s not just recent college graduates who find themselves unable to afford a home. Adult children in their 40s and 50s face a similar predicament with inflation and home prices outpacing their earnings. Yet, help could be on the way for adult children whose parents can step up to provide the assistance needed to purchase a home and begin building future equity. Parents could cosign a mortgage thus backstopping the loan and being responsible for any missed payments. However, such a generous gesture comes with the risk of them incurring the burden of another mortgage payment or risk damage to their credit should their child default. Parents with adequate financial resources and liquidity may gift their children the money required for a down payment. However, under current tax guidelines gifts totaling over $18,000 a year must be reported as income. Would-be homebuyers may also find assistance if their parents provide them with a family loan. This still requires that their parents hand over a tidy sum of cash that may negatively impact their retirement savings and potential earnings. However, some younger homebuyers may need a reverse mortgage to buy a home in today’s market–their parent’s reverse mortgage. Older homeowners who wish to assist their children in purchasing a home and who don’t want to tap into their retirement savings or draw from their cash reserves could opt instead to get a reverse mortgage. The parents could use a portion of their reverse mortgage proceeds to provide the needed down payment or pay a portion of their child’s monthly mortgage payment. This would allow them to leave invested and liquid assets untouched while generating the cash needed to help their child. The trade-off is that mom and dad are offering up an increasing portion of their home equity to help. However, if they had planned to leave the home to their children such a strategy could be seen as an early inheritance. A 2023 Charles Schwab survey of more than 700 American investors between the ages of 27 and 95 found more than three-quarters of parents plan to leave their homes to their children when they die. And with this being one of the most common objections to getting a reverse mortgage, an early inheritance strategy may overcome this common misgiving. With home prices and interest rates at record highs, adult children of all ages may need their parent’s assistance to buy a home. A reverse mortgage, when suitable, could fit the bill. By Shannon Hicks
DeSantis stamps changes to reverse mortgage tax requirements in Florida
Florida Gov. Ron DeSantis (R) signed a bill into law this week that changes certain requirements for the state’s reverse mortgage borrowers, a move that the National Reverse Mortgage Lenders Association (NRMLA) says could save money on closing costs. The new law, House Bill (HB) 7073, changes the way the state’s “documentary stamp tax” can be applied to reverse mortgages, among other provisions related to taxation. The documentary stamp tax “is an excise tax imposed on certain documents executed, delivered, or recorded in Florida” according to the state’s Department of Revenue. Common examples of instances subject to the tax include “documents that transfer an interest in Florida real property, such as deeds” as well as “mortgages and written obligations to pay money, such as promissory notes,” the department said. Under Florida law prior to the bill’s passage, “if a mortgage is recorded in the state, it is subject to the documentary stamp tax on the full amount of the obligation secured by the mortgage, regardless of whether the indebtedness is contingent,” according to an analysis by the Florida House of Representatives’ ways and means committee. “Currently, the documentary stamp tax is applied to the entire mortgage obligation amount rather than being applied to the principal limit amount,” or the maximum amount of proceeds that a reverse mortgage borrower can receive. This will now be changed, according to provisions of the law as analyzed by the committee. “For reverse mortgages, the bill requires the documentary stamp tax to be applied to the principal limit amount and not the entire mortgage obligation amount,” the committee said. “The bill defines ‘principal limit,’ and requires the documentary stamp tax be calculated on the principal limit at the time of closing. The bill clarifies that the changes to the act apply retroactively, but do not create a right to a refund or credit of any tax paid before the effective date of the act.” As argued by NRMLA in a letter submitted to the state in March, the current law effectively makes reverse mortgage borrowers subject to pay documentary stamp taxes on amounts higher than what they can actually receive in a reverse mortgage’s principal limit. In a statement, “DeSantis described the new law as a counterbalance to “reckless federal spending“ approved by Congress and the White House. The law will take effect across the state on July 1.
3 Ways Boomers Can Leverage a Home for Retirement Income
Senior couple relaxing at home in the kitchen together© JGalione / Getty Images More boomers are retiring than ever before. According to CNBC, the baby boomer generation (those aged 46-64) will hit “peak 65” this year, with more than 11,200 Americans turning 65 every day (or over 4.1 million every year) from 2024 through 2027. Your golden years, while exciting, can also bring financial challenges without proper financial planning. Luckily, there are several ways to leverage the equity and value of your home to add additional cash flow in retirement. Here are three ways to leverage your home for retirement income, according to Experian: Do A Cash-Out Refinance A cash-out mortgage refinance involves taking out another home loan to absorb the remainder of your existing mortgage loan balance. You’ll go through a similar process as you did the first time you got a mortgage and your income, assets, debt and credit score will all factor into the approval process. The idea behind a cash-out mortgage refinance is that the new loan is significantly larger than your old one. It’s worth noting that lenders will typically allow you to borrow up to 80% of your home’s value. The cash balance from the loan that remains after your old mortgage balance is satisfied can be used for extra retirement income. Here are some potential drawbacks: Take Advantage Of A Reverse Mortgage A reverse mortgage allows retirees to trade the equity in their home for cash. Your home is used as collateral, however, you don’t have to move or sell your home. A reverse mortgage can provide upfront cash with fixed monthly payments. While similar to a line of credit or a home equity loan, the one major difference is that a reverse mortgage does not have to be repaid. Instead, the lender gets repaid from the outstanding equity on the home. This happens when any of the following occurs: Reverse mortgages are typically available to those age 62 or older and have significant equity in their homes. The most common type of reverse mortgage is called a home equity conversion mortgage, which is insured by the Federal Housing Administration (FHA). As of 2023, these are capped at $1,089,300. It’s worth noting that you’ll still need to cover closing costs, home appraisal costs, and application fees. Consider Downsizing If all your adult children have moved out of the house or you simply no longer need as much space, consider downsizing your home. By selling your home and purchasing something less expensive, you’ll be left with a nice lump sum of cash to put towards retirement. Here are a few important factors to consider: Story by Adam Palasciano
US Debt is forcing Americans to make difficult choices
The real-life impacts of our national debt and inflation will force more Americans to make some difficult choices Many reverse mortgage professionals have seen homeowners who’ve made numerous poor financial decisions: racking up high balances on their credit cards, spending more than they earn, and not setting aside money for the future. But there’s another spendthrift whose unchecked spending and accumulation of debt impacts us all. His name is Uncle Sam. In his column, A Reverse Mortgage on the Country David Thomas simplifies the scope of the federal government’s debt making it more tangible. To simplify matters he deducted eight digits from the nation’s expenditures and income creating a fictitious family unit. Here are the key numbers from the U.S. government’s 2023 Federal budget: Uncle Sam’s Family Budget: Dropping eight digits we can see that Uncle Sam’s family brings in approximately $44,000 each year, has $61,300 in annual expenses, has incurred $16,900 in new debt, and now owes a total of $331,700 to date. However, unlike your neighbor Uncle Sam (AKA the U.S. government) can do one thing to manage his increasing debt- create inflation. How inflation is used to reduce the national debt Because our national debt is based on the U.S. dollar reducing the value of the dollar reduces the value of the debt. This transfers the burden of our national debt from the creditor (the Federal government) to the borrower (every current and future U.S. resident). Consequently, every American today is shouldering part of the national debt as inflation erodes their purchasing power and reduces their standard of living. “Essentially, what we have is a reverse mortgage on the country, a practice where we draw upon future resources to meet present demands”, writes David Thomas. Older homeowners suffering under the burden of inflation may consider a reverse mortgage drawing from the accumulated value of their homes to offset the hidden tax of inflation that was forced upon them. In conclusion, our national debt is more than just a number- it’s a game-changer that impacts everyone, especially retried Americans living on a relatively fixed income. With the U.S. debt continuing to climb some hard choices will have to be made as inflation continues to rob us of our purchasing power. By Shannon Hicks