REVERSE MORTGAGE HIGHLIGHTS
Andy and Beatrice Hollimon had endured Midwest winters for decades, and it was time to fulfill their dream of moving south.
“We owned our home in St. Louis area for quite some time, and we vacationed in South Florida the last five to six years,” Andy says. “We were looking to change locations for retirement and were zeroing in on the geographic region that we preferred.”
The rules for securing a reverse mortgage are getting tougher. And most financial advisers say that’s a good thing.
In a reverse mortgage, homeowners borrow against the equity in their house. They can take the money in a lump sum, monthly payments, or as a line of credit to be tapped when needed. Reverse mortgages are generally made by specialist lenders, and the most common loans are backed by the Federal Housing Administration’s Home Equity Conversion Mortgage program, widely known as HECM loans. Borrowers must be 62 years or older to qualify.
As you know, some seniors turn to reverse mortgages as a way to fund retirement, free up monthly cash-flow, or buy a new home.
But reverse mortgages also come with pros and cons such as ongoing responsibilities of homeownership, upfront costs, or the drawing down of home equity over time that leaves less inheritance for reverse mortgage heirs.
One of the nation’s most influential consumer advocacy organizations used uncommonly strong language to caution seniors about pursuing reverse mortgages “Don’t be suckered into buying a reverse mortgage. Advertisements make them sound tempting but reverse mortgages can put your retirement at risk” So says a recent consumer reports article found HERE.
“If the HECM puts your clients entire retirement at risk, it’s most likely that they did not have much of a retirement to begin with.” – D. Graves
In June, the Federal Housing Administration issued revised guidelines aimed at providing some relief to spouses of reverse mortgage holders after the borrower dies. The provision had applied to new mortgages written after August 2014, but the guidelines in June expanded it to older loans.
Recently, the Federal Housing Administration (FHA) tightened eligibility requirements for the most common reverse mortgages — Home Equity Conversion Mortgages (HECM), FHA-insured loans from banks and mortgage brokers.
Yes, if your advisor wants to lose his licenses, have a NSA drone hoover outside his window and become the poster child for the new pilot of American Greed.
You know you have hit the big time when you get on Letterman. And to have none other than Mick Jagger make mention (at the 3 minute mark) of the humble resource that is changing retirement is Epic!
I smile when I think about it. Why?
Because most advisors still have not understood the profound impact that housing wealth can have on retirement income and outcomes.
With an HECM loan, homeowners 62 and older can tap some of the equity of their principal residence for money to live on. They can also use it to pay their regular mortgage. These can expand people’s retirement planning flexibility.
New Reverse Mortgage Rules Open Door To A More Secure Retirement – Jamie Hopkins
Owning a home has always been part of the American Dream. Therefore it should be no surprise that home equity represents a large portion of the average retiree’s net worth according to the Consumer Financial Protection Bureau statistics. Now, as many Americans near retirement, properly leveraging that home equity will become a crucial part of a secure retirement plan. There are a variety of ways to tap into one’s home equity, such as downsizing, taking a traditional home equity loan, home sharing, entering into a sale leaseback arrangement, or entering into a reverse mortgage. However, each of these strategies is not suitable for every retiree. For instance, the history of reverse mortgages has taught us that they are not the right financial strategy for everyone.
Should a Client with $1100 in Income Be Living in a 5,000 Sq Foot Home?
“Absolutely NOT” was my reaction when the advisor called me this week. They were looking into a traditional Reverse Mortgage. “No way”, I said, “You need to tell your client to consider moving”
FEATURED VIDEOS OF THE MONTH
RETIREMENT INCOME PLANNING HIGHLIGHTS
Being able to retire early is the pinnacle of financial planning. It brings together years of hard work, discipline and compromises to a joyful celebration. Just thinking about the days when I won’t need to work gets me excited. But not everything will be rosy with an early exit. Here are some of the challenges of early retirement:
Most financial planners have no interest in working with millennial clients, according to a recent survey by a consulting firm called Corporate Insight. In fact, the survey of 500 advisors found just 30 percent are attempting to gain clients under age 40.
Most investors – understandably – are worried about not having enough to retire. But the opposite “problem” is possible.
Saving too much for retirement is not a typical situation, but investment management firm T. Rowe Price reports it does happen. The investment company finds several demographic trends among investors who wind up banking more than they need to retire.
The Retirement Planning landscape has shifted. Positively and in some cases not so much. Every 10 years the White House hosts a conference on aging and Retirement Income Planning was front and center this year.
Whether you or I agree with the policies of the current administration is not the focus. We as advisors need to be informed about the issues being discussed that affect our industry regardless.
The decision of whether to delay Social Security benefits is a trade-off: give up benefits now, in exchange for higher payments in the future. If the higher payments are received for enough years – dubbed the “breakeven period” – the retiree can more than recover the foregone benefits early on, even after adjusting for inflation and the time value of money.
With couples, however, the decision to delay is more complex. Earning delayed retirement credits can not only boost an individual’s own retirement benefit, but increases the potential survivor benefit as well…
My wife and I would like to know how large a nest egg we need to retire. I understand there’s no magic number, but what do you think is a good number to shoot for? — Scott R.
You’d never know it for all the attention “The Number” gets in retirement planning. But the fact is that the road to retirement has far too many twists and turns to pin down your savings effort to any single number — magic or otherwise.
Over the years there has been plenty of rhetoric about Social Security becoming insolvent in the very near future. So far those predictions have not come to fruition. However, recently the rhetoric has been ramped up again. Syndicated radio talk show host Mark Levin has dedicated countless hours on the subject. Barons has written numerous articles on it.
Now there are even Congressmen who are taking up this issue. What is surprising is that in order to actually save Social Security all that is needed is to provide even more benefits than before.
Only about 13 percent of individuals in the U.S. carry some form of long-term care insurance (LTCi), according to 2014 research by the Center for Retirement Research (CRR) at Boston College. There are two important conclusions for financial professionals to draw from that statistic:
First, there’s a clear disconnect between facts that suggest a genuine need for some kind of long term care (LTC) protection and the willingness of consumers to acknowledge that need by actually investing in such a product.
There are more than 2,700 rules in Social Security’s handbook. It’s enough to make you want to give up on ever figuring out the best choices to make for your retirement. But if you do your homework and fully maximize your benefits, it will mean more freedom and security as you age. There are some straightforward ways to get started on Social Security planning, such as keeping track of your earnings and benefits with an online account and evaluating your health and wealth. But diving into all those rules can be a little terrifying.
Far more than merely an economic event, retirement is a life redefining milestone. Leaving work and transitioning to a different way to spend your time and money can change your identity. One trick: an open mind regarding leisure, learning, family and, believe it or not, even more work.
There are two constants when I write a blog post about reverse mortgages, also known as home equity conversion mortgages when the mortgage is insured by the federal government. One is that the haters will weigh in on how bad reverse mortgages are for seniors. The other is an reverse mortgage lender will point out that seniors can use a reverse mortgage to purchase a new home.
For the haters, it’s pretty clear that people aren’t saving enough for retirement. One of the places they have been able to build wealth is in the equity in their home. Untapped, it’s a reserve for future financial needs. When the need becomes more immediate, it’s a way to tap the equity in your home, without creating a monthly payment stream that a cash-out first mortgage or a home equity loan would require.