Remember when you were a kid and your favorite cereal box said new and improved? New Reverse Mortgage is a fair description because the government frequently makes changes to the program that are designed to protect seniors and tax payers. This October saw one of the biggest changes ever.
Making optional payments on a reverse mortgage may be strategically wise. Academic research since 2012 suggests that the delayed and gradual use of a reverse line of credit can be extremely helpful in prolonging the longevity of an investment portfolio.*
I'll Lose My Tax Deduction
If I get a reverse mortgage, I’ll lose my mortgage interest write-off. We frequently hear that when we first meet clients. It is a common misconception.
What homeowners 62+ really need is clarity and direction around how and when interest on a reverse mortgage is tax deductible.
Retirees are going to have to access some of the wealth trapped in their home. The question is how? Using a conventional HELOC (home equity line of credit) can be especially risky for retirees.
It’s easy to find people who say you should not touch the equity in your home, but that tends to be an emotional response that is out of sync with Americans' reality. This is why many leading academic journals and news organizations are talking about the importance of home equity in retirement.
In a previous era, people paid off their homes, they had lifetime employment, pensions paid their bills and they didn’t live as long. Now, healthcare inflation far exceeds wage growth, employment isn’t nearly as secure, and few have pensions – at least ones they can rely upon.
Retirees are outliving their savings. When they do… then what? This article is for homeowners who have considerable equity but can’t afford, or don’t want to maintain, their current house. Then the question becomes: is it better to sell and rent, or downsize and buy?
There are two types of reverse mortgages currently available: the FHA-insured HECM (Home Equity Conversion Mortgage) that is frequently advertised on TV, and a new proprietary reverse mortgage that is commonly referred to as a Jumbo Reverse. Jumbo reverses are primarily designed for people who have homes worth over $1 million, or condos worth $500k+ to access more of their wealth than is possible with an FHA reverse.
In the past two years, there has been much favorable press around reverse mortgages both from high profile news sources (Wall Street Journal, NYT, Forbes, Bloomberg) and Ph.D. academics discussing a reverse mortgage as a wealth management tool. You can find these articles on our Facebook page. Despite the coverage, there is a lot of confusion around what happens at the end of a reverse mortgage. We're frequently asked the following...
Getting a reverse mortgage is not like the old days. Since 2014, there are more rules, more paperwork, and borrowers must now qualify to get a HECM (Home Equity Conversion Mortgage). These changes were designed to protect seniors and tax payers by reducing defaults. Most people do not understand reverse mortgages; even fewer are aware of these recent changes. Most people who assume that because they have a lot of equity, they can automatically get a reverse. They are surprised and frustrated when they find out that’s no longer the case.
If you’re trying to cut a board in half, a hammer is a terrible tool. This analogy applies to most financial products or strategies – the pros and cons depend on the context.
We’re often asked, “At what age can you get a reverse mortgage?” The quick answer is 62, however, when more than one person lives in the home, the answer is more complicated.
Below we'll explore the details, including recent changes by HUD (the Department of Housing) which were implemented to protect younger spouses who aren’t on the loan.
One of the most frequent questions we hear is, “Do reverse mortgages make sense?” But that’s not where the conversation starts. Over the last 9 years I’ve seen a recurring pattern that goes like this: rejection, confusion, understanding, disbelief, acceptance.
The Rejection stage reminds me of a quote: What we don't understand, we fear. What we fear, we judge as evil. What we judge as evil, we attempt to control. And what we cannot control...we attack. –D. Brown
When people learn reverse mortgages are safe, highly-regulated, government-insured loans, they realize those who say, “Reverse mortgages are a scam,” are ignorant; they just lack knowledge.
Our post titled, Reverse Mortgage Home Purchase Strategy, detailed a three-part strategy around continuing to be a home owner as opposed to selling and becoming a renter. The financial benefit to the senior and their estate is considerable. The third part of that strategy is minimizing property taxes by taking advantage of CA Propositions 60/90 when possible. This article answers the most common questions we hear about Prop 60 or 90 and provides some background information you'll need to implement the strategy.
How to intelligently shop for, compare, and get an FHA-insured reverse mortgage.
Our passion is helping seniors overcome the challenge of not having enough income or cash. The financial tool we specialize in is a reverse mortgage. We help homeowners, home buyers, and professionals who refer to us.
Frequently, we hear thoughtful questions like:
• How do I know if this is suitable or right for me?
• What does it take to qualify or would I be eligible?
• What are the benefits, costs, pros and cons?
• What are the steps and how long do they take?
This article includes two videos: 1) an Overview of the process; 2) an Explanation of each of the steps, and an opportunity to download a one-page Map that shows approximately when steps occur.
Begin with the end in mind
Most people approach borrowing and debt very transactionally, which is not their fault because they've never been trained how to view debt as one part of a comprehensive wealth management plan.
Think of a well-constructed plan like a wheel with six spokes: 1) income, 2) assets, 3) liabilities (debt), 4) taxes, 5) legal, and 6) risk (insurance). If one spoke is longer or shorter than the others, the wheel will be out-of-round and progress will be slower and more difficult than it needs to be.
When financial planners, Realtors, home owners or buyers contact me about how to get a reverse mortgage, I encourage them to step back, take a look at the bigger picture, and begin with the end in mind. Where does the client want to be in 3, or 5, or 10 years? How does each spoke affect the others?
Most of us spend more than half our income on taxes and interest. Subtract out healthcare, the high cost of housing, and maybe college tuition and it’s no wonder the U.S. savings rate over the last ten years has been as low as 1.9% and is currently 4.8%.1 During retirement, our focus is on minimizing monthly payments and taxes.
This post is about a three-point strategy I teach clients and financial services professionals to minimize monthly payments, including taxes, and increase wealth in retirement. Parts of this Three-Dimensional Reverse Purchase™ strategy are either unknown or misunderstood, but when the three components are done in combination, the difference in quality of life, sense of control, and size of heir’s inheritance is substantial.
There are several myths about reverse mortgages: the lender will take your house, they’re very expensive, the kids won’t get anything, etc. Ongoing and recent changes by HUD to the FHA-insured reverse mortgage program have enhanced its long-term stability and suitability as a solution to one of America’s biggest demographic challenges – bridging the gap between longer lifespans and insufficient retirement savings. Here we will consider the claim that reverse mortgages are expensive.
Financial planners, CPAs, and estate planning attorneys continue to ask about the new HECM requirement called Financial Assessment and how their clients can Qualify for a Reverse Mortgage.It has been described as the biggest change to ever happen to the reverse mortgage program.
Now, unlike before, lenders must analyze the borrower’s credit history, liabilities, debts, and income to determine their willingness and capacity to meet their financial obligations to qualify for a reverse mortgage.