I was driving my kids to school today and heard an advertisement for a movie that was so real and so frightening that I almost drove my car off the road.  The movie is called Drag Me To Hell and yet not having seen the movie, I am already scared on several levels.  First of all the entire conflict starts when an elderly woman walks into her local bank to ask for an extension on her loan.  The bank manager, in an attempt not to roll over and show any degree of pity, denies the extension.  Oh my, the first horror is realized as I imagine myself in the elderly woman’s shoes.  What would I do?  They could make a horror movie out of that in and of itself.  But the plot thickens as the elderly woman casts an evil spell that brings fierce demons upon the bank manager, forcing her to suffer greatly before her decent into hell.  Double the horror, what if loan officers who couldn’t push a loan through suffered similar consequences?  Not only would they not receive any commission, but they would undergo the most unpleasant of fates. Well if Forward Mortgages, and the trouble and pain people around the country are feeling in this present time, represent the path to hell, than perhaps I can offer an alternative.  Allow me to tell you about the movie I want to produce.  Its called Lift Me To Heaven.  Its about an elderly gentleman who walks into a bank and asks for an extension on his loan, allowing him time to gather some finances.  The bank manager kindly listens to the old man and finally tells him about the Revere Mortgage.  The elderly man is amazed at her kindness.  The bank manager explains how the reverse mortgage will allow him to pay off all of his debt as well as provide him with an income for the rest of his remaining years in the home.    Now he is just ecstatic.  His problems are solved and his once evil heart melts away like the Warlock in Santa Clause is Coming to Town. Now I really wanted to end the story with the old man reaching across and kissing the young pretty bank manager, thus transforming himself back into the young prince he once was.  But of course that would mean that he would no longer be qualified for the reverse mortgage be much younger than the required 62 years old.  But perhaps we could end the story by allowing the young bank manager/maiden, to inherit his small kingdom in years to come.

I was recently speaking to a loan officer I met who worked in Arizona, named Anne.  She had been a successful for the better part of her 7 year career, having decided to jump into the mortgage game at the beginning of the mortgage boom we all experienced, and admittedly enjoyed, even though it lead to where we are today.  However this young woman was a brass go-getter.  Her motivation was the money.  (Which is not to say it was simply greed).  None-the-less, she made the move from being an assistant golf pro, to learning about mortgage origination during a three-day course at the local Real Estate School.   Having passed the final exam, (which I believe was graded on a curve so that all would pass), she was able to send her resume out to multitudes of mortgage companies, looking to add on to their commission based army of hustlers.   She seemingly fit in great with the rest of the group.  Starting with friends and family, and getting referral after referral as rates continued to drop, she soon found herself in a prospering new business.  Then of course; it all came to a halt.   Now with most lenders, this marked a point in time where the professionals moved forward and the hobby goers, packed up and moved on to their next gig.  As for Anne from Arizona, she decided stick it out and change her tactics.  Her new focus: Reverse Mortgages.

Reverse Mortgages has just started becoming available about the time she entered the industry.  Most loan officers had some vague idea about them, with some of the main impressions being that they were a bit harder to process and special training was required, the borrower had to go through counseling, and that there must be some “trick to them because they just seemed like a pretty neat product.  All in all, there was no real need to bother with them because the other forward products were going great.  However today, the forward mortgage pool is much more shallow, while the elderly population continues to grow, and many of them have substantial equity in their homes. 

Now Anne saw this as a great opportunity.  She began calling on seniors, going door to door in older neighborhoods.  Her first 25 calls yielded only a few Reverse Mortgage Loan applications.  Her next 25, generated twice as much, and by her third set of 25, Anne as converting over a dozen cold calls into applications.

What Anne had found was that many seniors were used to being poor, growing up in the Great Depression.  They had been raised to pay their homes off free and clear, to leave to their children so their children would never be poor.  Company stock and retirement plans where something that came along as they grew up, so fortunes were made through real estate.  Anne found that by exploring a little bit about finance in general and how the economy, taxes, and financial vehicles, had revolutionized themselves over the years, she was able to break through the long held perceptions of the past.  In fact with proper planning, a senior could have a Reverse Mortgage, ridding themselves of debt, and allowing them to live with a bit more financial freedom, while still protecting their children and passing down an inheritance.   Now Anne’s business is over 7O% based on Seniors and Reverse Mortgages.  Although Anne is a bit stingy as far as passing down any of her “sales formula, she does recommend that loan officers interested in learning about catering to this growing market speak to a financial planner regarding the benefits a Reverse Mortgage can have on potential borrowers. 

Many people, seniors and juniors alike, have a misconception that a reverse mortgage is nothing more than selling your home to the bank.   There is no more truth in that than saying you own your home now, knowing that the bank holds a note on it worth 95% of the current value. 

A Reverse Mortgage is a mortgage just like the 30-year fixed we all know and love.  We, as homeowners, have the right to do what we like with our home, without having to consult with the bank. We are on the title, and reserve the right to pass our home down to our children, without the bank coming in and taking it from them claiming that they own it.  However the bank does reserve the right to call the note, under specific circumstances.

What homeowners, and their families should be aware of is that a Reverse Mortgage starts with a borrower 62 or older, living in their primary residence.  They also need to have substantial equity.  The premise of the Reverse Mortgage is that the bank sets a loan amount that it is willing to lend against the property, (just like a traditional mortgage), but instead of the loan proceeds going to someone else, like a seller, on the traditional side, they go to the homeowner.

So what happens when the homeowner vacates the home?  Many people are under the impression that the bank comes in a takes over.  This is certainly not the case.  In the event that the homeowner leaves the home, (and yes on a more permanent basis.  Vacations are allowed), the lender generally gives 9 months to settle the note.  This can be by selling the home, refinancing, or if available, having the not paid off.   In the event that the home does not sell, nor can anyone purchase, or refinance the note, the bank will step in and sell the property.  Keep in mind that most banks want to work with you.  If they see that an attempt is being made to resolve the debt, then they may grant an extension.  If the bank does come in and foreclose on the property, then they will become the party responsible for selling it.   Any proceeds available after the sale and appropriate fees, will go back to the estate.   Furthermore any heirs are not personally obligated to repay the note, thus a Reverse Mortgage allows for a degree of safety in terms of not creating an undue burden on the remaining family members.

I recently received an email from a reader that seemed to understand the concept of a Reverse Mortgage, but still did not completely understand what exactly a Reverse Mortgage was.  Oddly enough I kind of understand where he is coming from.  Think about all the things in life you fake.  Or the things you have just enough information about to get you in trouble.  I was a mortgage banker in my previous life.  (Sometimes I feel like a cat, I have so many lives).  In any case, my point was that I was extremely successful prior to the collapse of the market.  I had a great client base, built up of many successful retirees, developers, and well-backed investors.  With a little bit of cash, or a great story, I could get the deal done.  In a short time my client base was out of date and replaced with FHA Loans.  Unfortunately for me, I didn’t have a single FHA Loan profile.  Being obstinate, I wasn’t looking for one either.  I could easily compare myself to the reader in that I can tell you that FHA is for buyers looking for homes lower in value, you can go to 97% Loan to Value, there are advantageous programs to support the purchase, and the rates are favorable.  Yet I really have know idea what an FHA Loan is, nor am I 100% confident that I could put one through, or recognize the characteristics of one.   So yes, talking about a Reverse Mortgage intelligently as the reader did, and yet asking what one was, is not far from my comprehension.

In a traditional mortgage that most of us are familiar with, you pay it forward.  That is to say, you take out $200,000 and pay it back with interest over 30 years.   At the end of the term you own your home free and clear.  With a Reverse Mortgage, its the opposite, (as the name would imply).  With a Reverse Mortgage, you tend to own your home free and clear going into it, (or have substantial equity), and your mortgage pays you.  In this case you would take out $200,000 and the bank would pay you.  Now the neat feature is that instead of making payments as with a forward mortgage, the bank makes the payment to you.  Now you also have the option of taking the $200,000 out in a lump sum, a line of credit, or a combination of any of the three. 

The common misconception is that the bank is buying your home for the loan amount.  This is not the case at all.  You retain the title on the home, and should you leave the home, the loan is paid off and the remaining equity goes back to the estate.     As an example, a home that is valued at $700,000 and has a Reverse Mortgage of $250,000, would yield the $700,000 minus $250,000 plus any accrued interest, back to the Estate.  Furthermore the money received from the Reverse Mortgage is TAX FREE!  The Equity in your home could be more valuable than some retirement plans.  Reverse Mortgages won’t affect any Medicare, Medicaid, or Social Security benefits.  

Now the second part to the readers question was, is it always a good idea?  No.  A Reverse Mortgage is not ALWAYS a good idea.  When it comes to major financial decisions you need to have an expert, such as a financial planner, assisting in guiding you through all the options.  There are so many factors involved with a reverse mortgage that determines the value of it, that you really need have to envision the overall financial spectrum, before making a decision. 

However I do feel that reverse mortgages are often overlooked as viable financial tools.  I feel that people often look at the initial cost of executing one, and turn away without exploring how it plays in the total package.   Think about it: What if you took out $200,000 with a reverse mortgage; put it into an investment; left your home; cashed out on your investment now worth $275,000.  You could pay off your $200,000 lien and give your heirs $75,000.  So while a Reverse Mortgage is not always a good idea, I would say its always a good idea to explore one with a mortgage professional and a trusted financial planner.    

As with most things in life, people seem to take radical sides when it comes to Reverse Mortgages.  Some advocate that Reverse Mortgages are the saving grace for seniors, while others want to focus on the costs involved in a Reverse Mortgage and say these HECM Loans are praying on the elderly.   All in all, it’s a tough argument, but the reality is that it goes back to the familiar saying of “pay me now or pay me later.
 

The first thing we all need to comprehend is that mortgages aren’t free.  They are products designed to make money.  The money they make is dependent upon the risk to the bank.  Ask yourself the simple question about your own funds: If you had $200,000 to lend someone and you had no idea of who they were personally.  The only thing you had to go off of is their application and credit report.  And let’s say the first person told you, “I want to borrow $200,000 and I will repay you over 30 years at 5%.   Sounds pretty good.  You would get a constant return for the next 30 years and make over $186,000.  You would almost double you money.  The next individual asked to borrow the money but told you, “I want to borrow $200,000 but I only need it for three years.   You have to consider that the return may not by as high as a 30 year term, but you will also have your money back in three years to do something else with.  And you will still receive $30,000 in profit.  You would make over 10% profit in three years.   The next individual comes in and says, “I want you to give me $1,200 a month for the rest of my life, and I will pay you back when I leave my home or pass away.  (Ah yes, the Reverse Mortgage).  Hmm, this stops and makes you think:  What’s the value of home now, how old is the borrower, what are the odds of making money by lending it?  If I give them  $1,200 a month for 15 years I would actually loose money.  (13.9 is pretty close to the break even point in this scenario).   Your response will most likely be one of “OK, I can only do this if I get some kind of profit up front.  So I will take $20,000 up front, and I will gamble on the rest.  In the back of your mind you are playing the odds of – will this person live that long?  Will they be forced out of the home and into a nursing home? Or will some other disaster take place.  From a risk standpoint you are in pretty good shape.  You have your profit up front with a solid asset backing it; an asset so strong that it’s to your advantage if things go sour.  You may be able to take less profit because you can reinvest yourself.

Now, what gets me at times are all the folks who say Reverse Mortgages are too expensive, or are taking advantage of the elderly.  I feel taken advantage of when I read how much money I will pay out to the bank by the time I pay my mortgage off.  Its never like when I asked my brother to borrower $700 and I paid him back $700.  Yes the truth is that banks lend money to make money.  So pay the bank now or pay them later.  The reality is that giving the money up front, reduces the risk to the bank, thus the terms may be better off in the long run.

With the popularity of Reverse Mortgages, it is probably a good time to understand what exactly is a Reverse Mortgage.  Oddly enough some people think it is nothing more than a bank buying your home.  I would have to agree on the practical level there’s a great deal of truth in that.  But I guess it’s also true that the bank owns your home with any mortgage.  Many people understand the difference between an Adjustable Rate Mortgage, (ARM), and a 30 Year Fixed; in comparison I would like to take a look at the various Reverse Mortgage Products.

There are three basic types of Reverse Mortgages.  The first one is a Single-Purpose Reverse Mortgage.  These are offered by some state and local government agencies, and non-profit organizations.  They are the least expensive option in terms of the total costs of the loan, but they do come with the drawback in that they are not available everywhere and they do have restrictions as to what the loan may be used for, as specified by the lender.  For example the proceeds may only be used for taxes, home repair or home improvements.  Homeowners with low to moderate income can qualify for most Single-Purpose Reverse Mortgages.

The second is the Federally-Insured Reverse Mortgage, which is also known as the Home Equity Conversion Mortgage, or HECM (pronounced Hekum).  The HECM is backed by the U.S. Department of Housing and Urban Development (HUD).  These types of reverse mortgages are more expensive than traditional mortgages with closing costs running as much as $8,000 for a $300,000 loan amount.  However HECM Loans are widely available, have no income or medical requirements, and they can be used for any purpose.

Before applying for a HECM, you must meet with a counselor from an independent government agency to review all the financial details of the loan.  HECM Loans can be a bit more complicated as several factors go into the loan amount such as your age, type of payout, market value of your home and current interest rates.   A HECM can be paid out as lump sums, lines of credit, fixed monthly cash advances or a combination of the various types.

And finally there are Proprietary Reverse Mortgages, which are private loans backed by the entities that develop them.  Proprietary loans are more along the lines of a business making a sound decision.  These loan products can make more sense, by having additional value when your home has substantial equity and you elect for a lump sum disbursement, as you may qualify for higher loan values.   Similar to the HECM Loan, Proprietary Reverse Mortgages also take into account factors such as the age of the borrower, current interest rates, and home values. 

I remembered when I applied for my first mortgage and the infamous ARM was introduced as a possible option.   This product would allow my wife and I to borrow an additional $15,000, subsequently getting us into our first home.  I am sure as we grow older, put our children through school, weddings, (Yes I have three girls), and take care of any other financially unplanned events, that the time will come when my wife and I will apply for a Reverse Mortgage.  Looking at the traditional forward mortgages available today, (or perhaps that were available two years ago), that the Reverse Mortgage product offering will be just as prolific in years to come.  Understanding the basics now, will set a solid foundation the future. 

With the recent downturn in the stock market, many seniors who had spent years saving money and investing it, in hopes that they would be able to spend time with their grandchildren or travel the World, have found themselves in an unforeseen situation.  The money they saved has drastically been reduced, if not gone altogether.  Fortunately these same individuals have also been paying down their mortgages thus creating substantial equity in their homes, allowing them to fall back on Reverse Mortgages to assist them with their retirement goals.

Reverse Mortgages are generally available to those of age who are 62 and older.   Reverse Mortgages allow these homeowners to convert the equity in their home over to tax free income.  In true poetic justice, after paying the bank for years, now the bank pays you.   Homeowners can elect to receive their payment in a lump sum, fixed monthly installments, or a line of credit.

Despite the current housing slump, Reverse Mortgages are booming in comparison.  The number of federally insured mortgages hit 112,015 in 2008, which was up significantly from 43,082 in 2005, according to the federal housing data. 

One of the major reasons is simply that seniors are looking for cash.   Whether they are living longer, running into unanticipated expenses, or trying to keep up with inflation, the bottom line is that seniors need additional income, and their homes have become a commodity rather than in inheritance.  Nelson Rood of Equity Concepts of Arizona LLC, says, “Were suggesting a lot more of our senior clients look at reverse mortgages as a means of providing an income for the short term, allowing their portfolios to rebound from the hit they’ve taken over the past two years.  However, adds Rood, “seniors exploring reverse mortgages need to be aware of the costs involved in doing so.  Homeowners pay 2 points, or 2% on the first $200,000 they borrow, and an additional 1 point, or 1% on the remaining balance before capping out at $6,000.  Unfortunately, that’s not all.  Additional costs of a Reverse Mortgage can total as much as 10% of the value of the home.  In some instances it may be wiser to accept the consequences of withdrawing funds from a less than healthy retirement account, rather than jump into a reverse mortgage.

There is somewhat of a safe-guard with Reverse Mortgages; as long as you own the home, you are not obligated to pay back principle or interest, which continues to add to your outstanding balance over time.  When the homeowner sells the home or passes away, the note will then need to be repaid.  However in the event the home sells for less than the balance of the note, the estate inheriting the property is not liable for the difference.

All in all, Reverse Mortgages are financial tools, that when utilized properly, can provide seniors with a stable retirement, allowing them to utilize the fruits of their labor.  However, a degree of caution should be understood before running out and stripping away the equity in your home.  In addition to speaking with mortgage bankers who specialize in Reverse Mortgages, there are a variety of other resources such as the AARP, (aarp.org) and the National Reverse Mortgage Lenders Association, (reversemortgage.org), who can assist in answering any questions you may have.

A recent conversation with a homeowner revealed they were considering retiring at 65 but didn’t know if they could afford their current mortgage payments and other monthly debts with their social security and pension. He said he’s experiencing some troublesome back pain that is causing problems performing at his job and that he’s inquired about other positions within his company that doesn’t require him to be on his feet all day. He is not in the financial position he thought he would be in at this time in his life. He is not alone.

Let’s say he can’t afford his mortgage, regardless of what put him in this position to begin with, a reverse mortgage may be able to help him in his situation. What are his options at this time? He can try to sell the home and move into more affordable housing somewhere- that’s not something he’s interested in doing at this time as his wife is still working and her commute is “perfect” as she says it. His company recently let some folks go and other positions aren’t opening up at this time that he’s able to take that keeps him off his feet. His ability to perform his work properly, due to his back pain, could eventually lead his company looking to replace him or it could lead to permanent disability if he can’t get the relief he’s sought. So what happens here? From time to time we hear folks say that if someone can’t afford their mortgage they shouldn’t be living in a house they can’t afford. This gentleman and his wife can afford to live in their home- while they are both working, but will be cutting it close if he retires. So do they give up? What to do?

In this case, this couple will have more accessible cash upon his retirement if they use a reverse mortgage to pay off his current mortgage. Since they are no longer making a mortgage payment, they get to keep more of their income each month than they were and he can retire without fear of losing his home.

In 2001 Gallup conducted a survey asking folks if they thought their IRA, 401(k) and KEOGH plans would be a significant source of income for them in retirement and 60% said yes. In 2001. Today, that number is 42%.

Does this mean that a reverse mortgage can help the other 58%? Not necessarily but at least its an option they did not previously have. A reverse mortgage can help you retire.

For more information, go to the frequently asked questions section of this website or contact us here.

This website and others have been offering their opinion on the use of reverse mortgages to take the pressure off the portfolio for some time now. The Wall Street Journal recently recognized the same in an article from Anne Tergesen entitled Reverse Mortgage: Get Cash Use Caution.

What is important to understand is in hind sight, there are ton of folks that could have protected their investments valued more significantly than their real estate holdings by use of a reverse mortgage. If you were drawing from a $1,000,000 portfolio that fell 30% or more and you were in a $500,000 home, you now have a $700,000 portfolio in a $400,000 home. If that portfolio was providing the much needed cash to pay day to day living expenses, then the bucket that already has a hole in it also has someone taking money out of the top. Its going to take a while to plug that hole back up and refill the bucket. The cash flow capabilities from the reverse mortgage can supplement the cash flow needs which stops additional loss of the bucket’s holdings. The reverse mortgage won’t replace the cash on its own but it will stem the flow.

A recent conversation with a client that thought she had sufficient holdings revealed a wonderful analogy about how a person’s home can provide the power to fuel a senior’s life. After grasping the concept of using a home’s equity to provide cash for living expenses, she equated it to “living over a vast oil field with no oil derrick to access the oil”.

Our clients “get it” when they aren’t being sold to but being educated on how the reverse mortgage works. Release the oil with a derrick, release the pressure on the portfolio with a reverse mortgage.

Pick up a dictionary and look up the word stimulus and you’ll see- something that incites to action or exertion or quickens action, feeling, thought, etc.: The approval of others is a potent stimulus. Synonyms for that word include incitement, motive, provocation, stimulant.

The stimulus package signed by the President on February 18th was meant to do just that, stimulate the economy. It is an ambitious plan of federal spending and tax cuts meant to awaken our economy and save/generate new jobs. The stock market initially dove 400 points but then came back last week only to drop the last 2 days and the Dow is still not back to the number it was at back in early February when the package was signed. Where’s the approval of others, the incitement?

So who is it stimulating? Certainly not our nation’s seniors. Their portfolios are not increasing in value if the market can’t move off February lows, their homes are not all of a sudden magically increasing in value. News today that added to more anxiety and confusion is that some financial brokers may be worried that annuities won’t be able to provide the guarantees that many folks were sold on when they purchased them recently. About a dozen insurance providers have been downgraded and the fear is they may not be able to keep their promises of guaranteed returns on their annuity products, with some claiming a 7% increase in value each year. So what happens if they can’t meet that guarantee, do those clients get a bailout, do they get their initial investment back? Where is the certainty in any of this anymore?

A reverse mortgage provides that certainty. If its a couple of thousand bucks a month until you die in a lifetime tenure payment, then that’s what you will get with a reverse mortgage, guaranteed by the MIP paid by the borrowers, not by the taxpayers. Regardless of your home’s value increasing or decreasing, you will continue to get the amount promised you until you move away or pass away. If you want to make sure that you have access to a certain amount of money by the time you are, say, 75, you could put a big chunk of your cash flow under your mattress, hope no one finds it or throws it away. You could purchase a CD with a 2.36% return- and each year you have to elect to roll it back in or cash out (paying taxes on your growth- diminishing your hefty 2.36% growth) or better yet, secure the reverse mortgage. The margins on a reverse mortgage are higher than the return on the CD mentioned here which means the growth on cash left in your reverse mortgage credit line will grow faster than CD ever could plus you wouldn’t pay taxes on any of the money you take from your home’s equity (since its not income).

In addition, whatever cash flow you had access to before you secured your reverse mortgage can be added to the cash flow available from that reverse mortgage. It takes cash to make cash with an annuity or CD. All it takes is equity to get the reverse mortgage and there’s often way more equity than cash available for a large portion of those 62 and over.

Let’s take another look at a scenario based on April 7 rates for a 70 year old homeowner in a $300,000 home. That person has access to $170,000 in cash from their home’s equity, or almost 57% of the home’s value. That $170,000 will safely grow to $208,000 in 5 years if left alone. That cash will be available if the home increases or decreases in value and its backed by HUD, the same place where stimulus packages are created- the US of A.

Before you lose another night’s sleep over how you are going to come up with the cash to continue to live out your days with dignity and maintaining a quality of life, consider a reverse mortgage to supplement your cash flow needs. The opposite of stimulus (antonym) by the way is discouragement.

Reverse mortgages are the new financial miracle cure-all; they can replace the kitchen sink, they buy the cruise tickets, they put new tires on the car, they pay for mistakes you’ve made in your retirement planning, heck, they can put a big screen on your bedroom wall. While you’re at it, have it balance your checkbook, do your estate planning, find a local caregiver, make your mortgage payment dissappear. They cost too much, they don’t cost anything, they help, they hurt, you keep your home, you lose your home. We’re employing a bit of cynicism her but it’s all really overwhelming if you read more than one resource about them, everyone, including this site, has an opinion on them. They will do quite a bit for the over 62 year old homeowner if applied properly but they should be considered carefully before proceeding as with any financial vehicle.

We track reverse mortgage opinion because we care about the product and believe there’s more misinformation than there is good information and we’ve often said that reverse mortgages are not for everyone. Whether you qualify for them or not, not everyone over 62 is in a situation that can find them benefitting from a reverse mortgage. Some folks have more than sufficient monthly cash flow with no bills or their heirs are dependent upon significant portions of home equity that would be put at risk with a reverse mortgage. Some folks don’t plan on staying in their current homes long enough to warrant losing the costs for conversion and some may be too young and too far behind to let a reverse mortgage provide them with enough cash to make it to their expected end of life.

Bill Losey, a published Certified Financial Planner and author of “Retirement Intelligence” blogspot says the following:

“Too many of us keep the bar low by playing “to not lose” instead of playing to win because we assume that life has guarantees when in reality it doesn’t. Because of that one assumption, we’ve become complacent and dependent on guarantees. That dependency builds expectations that create comfort zones that are below our full potential and prevent us from making our greatest impact.

Our previous article spoke about end of life and how young, (some seniors) think they are and the complaceny Mr. Losey alludes to above. Its really amazing that in a glass-half-empty world there are quite a few glass-half-full Seniors out there that are beating the odds. They are 75 living in 60 year old bodies, taking every punch thrown at them and experiencing as much in the last quarter of their lives than they did in the previous 3. They have planned according to professional advice, have saved what they believed to be enough. They bought long term care in their 50′s and have a strong life insurance plan. They’re set financially so they hope to also be set physically.

That particular portion of the population makes up between 20 and 50% of the country. How about the other 50 to 80%? What they don’t know can hurt them- a very well written piece by Donald Jay Korn in Financial-Planning shares some details that are quite amazing when it comes to planning and maybe waiting too late to do so to protect the physical nature of things. According to the article, the average age of those purchasing long term care is now 58, down from 67 in 2000 and what is shocking about those statistics is that at 65, 30% of long term care participants are rejected and by 75, 50% were rejected. You want to get in early if you want to make sure you are both eligible and covered. The average need for long term care lasts between 24 to 36 months, and of the estimated 8 million long term care clients registered in 2008, 180,000 received long term care benefits- just over 2% of those eligible.

Reverse mortgages don’t really have much to do with those stats other than bringing to light being able to afford life, caring for oneself and protecting one’s investments in property and self. Since the age to increase your chances of qualifying for long term care are younger than the minimum age for a reverse mortgage, its clear the reverse mortgage should not be used to purchase the long term care but as the Financial-Planning article goes on to say below, a reverse mortgage could possibly allow for continued coverage once the client sees the need for both cash flow and the added health coverage:

“Indeed, clients probably should avoid canceling an older LTCI policy whenever possible. “Although there may be a need to reduce expenses as a result of the current economic downturn, maintaining these policies is important,” Ludden says. “The cost of this coverage is age- and health-based; therefore, it may be very difficult to find an affordable policy in the future if a previously purchased policy has lapsed.”

A reverse mortgage will not cure all that ails you but considering it as part of your financial and retirement planning will give you more options than you had been previously aware of.

Thank you for reading www.reverse-mortgage-information.org, please email us with you comments or questions.

This has been talked about before but when the margins increase on reverse mortgages the less the cash the homeowner gets from their reverse mortgage.

They have added a 3.50 and 3.75 margin on the monthly Treasury based, a 3.00 and 3.25 on the monthly LIBOR based and on the annual you will now see margins as high as 4.50. It appears they have an appetite but at a higher price to our nation’s seniors. Falling home values and rising margins spell less money for those already seeing less in their retirement portfolios.

If you are in a situation where your cash flow is running low or already empty and a reverse mortgage is a way to turn that around, don’t take too long to make that decision or it could be a $15,000 swing in available funds to you. Some say that reverse mortgages cost too much. Compared to what? Losing your home or all your dignity?

Nothing, really.

Most of you won’t remember this gentleman but there was a somewhat popular, English born, Scottish schooled, singer-songwriter in the 80s and 90s (and current for true fans) name(d) Lloyd Cole that penned a song named “Don’t Look Back” that contained a line “life seems never ending…when you’re young“. Besides being a beautiful song, that line has stuck with me since the first time I heard it and now that I work with older folks to help them better understand reverse mortgages I find it still holds true, even for folks in their 70s. Some of them don’t think they need help until its too late. Some of them have looked at assisted living facilities or retirement facilities and after checking them out they tell me, “I don’t want to go there, there’s nothing but old people there” and I heard this from a new aquaintance this week that said her 80 year old mother said she was “too young for one of those places”. They don’t think they’ll need help and they are making do in their current physical and financial position/condition.

Some of the folks that we’ve spoken to recently that said they were holding off on making a decision to use a reverse mortgage said they were waiting until they needed the money or until their home’s value went back up. Those sound like pretty good excuses to most people but who couldn’t use more cash flow at a time when it costs more for daily living expenses, and who doesn’t wish they had more equity in their home? They see 2 or 3 months of their retirement statements in a row and realize its all going away faster than anticipated and they can’t imagine how it can repair or replace their losses.

If we could all predict when we needed to take cover for protection or know when it becomes time to jump into the fray with opportunity for gain we wouldn’t be having the issues some are having in this economy. When its manageable we often become complacent and our defense mechanisms come down. Our complacency often costs us when we can afford it least.

Life seems never ending…when you’re young. I suppose its true regardless of age.

We recently attended a financial planning seminar and met with some folks that were business owners. They expressed interest in the reverse mortgage product because it showed promise to replace cash flow that their business could not provide. Due to the downturn in all types of business, some folks are looking at other ways to replace the missing cash flow or are concerned that if things don’t turn around, they may not be able to continue to keep their business running, especially for self employed folks such as bookkeepers, consultants, handymen, etc. One in particular was a landscape design specialist that companies use to design their business lawns that says she’s never not had a client in 20 plus years of business but right now has NO company calling her for new designs, they will maintain the design from last year. She has an investment portfolio that she can tap into but wants to make sure all her bases are covered should that flow of cash disappear as well (as its already taken an incredible hit).

The notion of being able to access cash when cash is in short supply was what interested them and as business owners they have become accustomed to managing cash flow and some have accumulated increased property wealth during their business lives. What financial wealth they have accumulated has been tested of late and some of them have not been able to build significant wealth since as self employed, they didn’t have a disciplined 401K or retirement plan to put their profits into so a reverse mortgage on their property is one possible solution to freeing up cash flow.

This further places focus on the reverse mortgage as a viable financial vehicle especially where cash flow is key. If during a downturn in business, a 62 year old or older can possibly use the reverse mortgage to supplement cash flow until business picks up again or until they can get their costs in control enough to create positive cash flow positions in the future.

The reverse mortgage, as has been mentioned often here, is NOT for everyone nor should it be considered to be used only as a last resort. By the time its used as a last resort to support a business owner that is running short of cash flow, its quite possible that the business wouldn’t be able to resuscitate itself. The cash could give it a much needed boost, enough to provide an edge over other businesses that have gone into a self imposed hibernation as a hedge in the downturn. As a refresher, keep in mind that someone 65 years old in a $650,000 home could gain access to almost $360,000 in cash flow. That’s an incredible amount of money for a sole proprietor to be able to access for any number of reasons and can be the difference between failure and success in any market. Obviously, this is a discussion to have with your CPA or attorney before moving into this option but we dare to say that even they haven’t considered the reverse mortgage as an option, we have found that most are against an option like this until they better understand how the product works.

For additional information, please contact us through the contact form on this site.

If you currently have or are considering a reverse mortgage, the rates on accrued interest this month is 3.52% on a LIBOR based monthly adjustable reverse mortgage, also called a HECM. So lets put that in terms that will get even more of your attention:

You, like many others, may be over 62 years old and still carrying a mortgage of some type. Don’t despair, there are statistics that show close to 50% of homeowners 62 years or older are carrying some type of mortgage or home equity line of credit on their home. If you have a $100,000 mortgage on your home and your interest rate is currently 6.5% (as example), you are paying somewhere around $632 a month in principle and interest. You are paying that amount each month. That is cash leaving your pocket each and every month.

If you used a reverse mortgage to pay off that $100,000, you wouldn’t have a payment anymore. That’s the best part about reverse mortgages, it creates cash flow for you. If you are concerned about the amount of interest that it costs you to secure a reverse mortgage, the rate this month of 3.52% on a LIBOR monthly adjusting reverse mortgage would accrue a total of $517 for the month. That however is money that you don’t have to pay back as the reverse mortgage is not due until you sell your home or the last remaining homeowner passes away. You created a way to keep $632 in your pocket each month and you won’t have to pay it back. Upon your passing, your estate will typically sell your home and they keep any remaining assets.

If you aren’t interested in having your property sold upon your passing, then a reverse mortgage is not for you but we often find folks that say, “I won’t be here anymore, what difference does it make at that time?” This isn’t a question of not caring, its just the fact that we can’t control what happens after we are gone and that we get caught up in concerns of what we can’t control instead of what we can while we are still here. Our dignity and quality of life should be our concern when we are here and we shouldn’t be worried about something that happens after we have moved on. In reality the rate at which interest accrues should not concern us but we are a numbers country and we like to know what our benefits will be and “what’s it going to cost me”.

We have heard reverse mortgage clients say that it didn’t cost them anything, it gave them freedom and increased their monthly cash flow and it was worth every penny. In fact, a great article on CNBC today shared the message that a person in Connecticut secured a jumbo loan at a rate of 5.25% by having to put 40% down. Did you know that someone 62 or older can now purchase a home using a reverse mortgage. In that case of the person in Connecticut, they are making a payment on a jumbo property at 5.25%, who knows what that payment is? If you’re going to put 40% down, why not also consider the reverse mortgage for purchase program. You put 40% down and you never make a payment, how bout them apples. Never make a payment on a house you just bought by using a reverse mortgage? That too is worth every penny!

For more information about how reverse mortgage rates are calculated, there are articles on this site and others showing how rates are determined. In addition, you can use the comment page or reach us through the FAQ section of this site and someone will reply to your question.

If you’re reading this its because you don’t know what a reverse mortgage can do for you. You’re doing research for yourself or a family member and when you put the term reverse mortgage into the Google search engine, you found this site as a reference and opinion site, not affiliated with a lender or association. You’re going to get the truth here, no sugar coating and of course its pro-reverse but you’ll also find comments on when its not a good idea to get a reverse mortgage.

OK, so here’s the secret about what a reverse mortgage can do for you or your family member- it will increase their monthly cash flow. That’s it, that’s the secret, cash is king and if you are short cash flow and a homeowner over 62 the reverse mortgage can be your friend. If you have cash but need access to more cash, the reverse mortgage can be your friend. No credit or income requirements to qualify, you need to be 62 and have sufficient equity in your home and the older you are, the more cash you can access.

Regardless of what you have heard about reverse mortgages, if you are over 70 and still making mortgage payments on your mortgage, there’s really no reason for it. Possible exception would be if your home will be paid off in the next couple of years, your monthly payments to your lender are not giving you enough future equity to make more of a difference than the shortage of cash flow you are experiencing. Why do we say if you are older than 70? If you’re still in your 60′s and working, you still have cash to add to your bottom line, so you may not yet need to stop the leakage. The principle and interest payments you are paying into the lender adds up so fast that you’re not going to recoup that net principle reduction in the next five years of a real estate market we are experiencing. Folks want to be mortgage free by retirement age and unfortunately the real estate market appreciated so fast that it was too enticing to not pay down other higher interest debt with the increase in home value. Don’t think you’re the only one that did that, over half of retirees are still making monthly mortgage payments. 70% of the reverse mortgages done are paying off an existing regular mortgage, all in the spirit of increasing monthly cash flow. Since a reverse mortgage does not require any payments for as long as the last remaining homeowner lives in the home, the notion of no payment at all is a welcome offering for someone on a fixed income.

Why wouldn’t you want a reverse mortgage? If you are planning to move in the next year or two, there may be less expensive ways, like a HELOC or personal loan from a family member. If your plan is to make sure that all the kids get as much of your estate as possible upon your passing, unless you’ve got a big life insurance policy that provides that boost, a reverse mortgage is probably not in your best interests unless you need the cash absolutely right now. If you want to look at increasing what your estate can get upon your passing, look at this while you are still in your 60′s and can qualify for a decent life insurance policy. If you can get premiums in the $2000 a month range and your reverse mortgage can pay that through the tenure lifetime payment process, then you can get the reverse mortgage and afford a policy that will more than compensate for the home’s value- hence, the kids get more than the home was worth and its all good for everyone involved. A win win if you will.

The Fed threw another lifeline to the masses today in the form of the purchase of up to $300 Billion in longer term US government debt. It sent the 10 year Treasury yield to its biggest one day drop since October of 1997. Lower 10 year Treasury yields directly affect those interested in reverse mortgages as it helps the client maximize the amount of cash they can tap from their home’s equity. The lower the yield, the lower the expected rate and the more money a senior homeowner has access to as long as the floor rate does not drop below 5.50% (floor rate established by HUD). The expected rates recently jumped into the 6.00 range recently which was yielding less to the borrower.

If the yield stays down because the Fed is buying so many of the Treasurys, it will be able to help more folks that are still making mortgage payments but don’t have the cash flow to keep those payments current and want their mortgage paid off through use of a reverse mortgage. Another thing Uncle Sam has does is that HUD recently announced an increased lending limit for reverse mortgages to $625,500 so that is also helpful for larger mortgage amounts for those on fixed incomes who have also seen their retirement portfolios decimated.

Each Monday evening, the Fed releases the average yields for the week and the reverse mortgage industry pins their rates on those numbers. Last Monday evening, the 10 year CMT was 2.92 and the 10 year SWAP (LIBOR version) was 3.15. As has been explained on this site and several others, the expected rate is derived from an index (either the CMT or LIBOR) plus the lenders margin. Since the expected rate is the index plus the lender margin (CMT ranges from 2.5 to 3.25 and the LIBOR ranges from 2.25 to 2.75), the CMT expected rate was between 5.50% and 6.17%. The difference between that range can result in a 70 year old person getting access to $226,000 or $251.000 a $25,000 difference. The Fed buying up Treasurys helps lower the Expected Rate on reverse mortgages and makes more cash available for seniors who consider a reverse mortgage. Let’s hear it for Uncle Sam.

If you were interested in increasing your cash flow, wouldn’t $25,000 make a difference for you?

We sat down recently with a group of financial planners to help them better understand how reverse mortgages could provide the supplement of cash flow their clients are clamoring for. They all admitted they had not looked toward the reverse mortgage as a viable financial vehicle until recently as some of their clients presented the notion that they would be willing to give up future equity to their heirs in lieu of access to cash today. That was the biggest eye opener to them as they admitted financial planners have 3 main goals in mind, to protect their clients assets, to grow their clients base and to create wealth for their client’s children. In fact, some admitted that part of their plan has always been to pay off the mortgage as fast as possible to cut down on the need for access to cash flow in their retirement years. “Making a mortgage payment on fixed income is not our idea of suitable planning” said one of the senior planners.

The third goal of creating wealth for the children had always locked them into the notion of leaving the real estate alone. “We seldom considered the home other than to sell it to create cash in extreme situations where a spouse needed long term care but had insufficient insurance to cover the duration of their hospital stay and subsequent rehabilitation” voiced the main partner. “That created another problem altogether as the remaining spouse was often forced to move to assisted living or to another family member’s home and the idea of not having anywhere to go often lead to family distress”, he added.

According to the Federal Reverse Statistical Release entitled Flow of Funds Accounts of the United States dated March 12, 2009, Americans held $10.453 Trillion in mortgage debt in 2008. Estimated household net worth stood at $51.5 Trillion showing mortgage debt makes up one fifth of all household debt in the United States. But what’s really telling is that the amount of home equity held by households in the US fell to just 47%. In the hey day of 2004 when housing prices had sky rocketed, the amount of home equity stood at 56.7%%. The combination of a 10% reduction in home equity along with a $2.3 Trillion loss in retirement savings plans equals a “Katrina like” effect on the country and since the older a person is, the more likely they are to have saved more, so this “Katrina” is hitting our Seniors the hardest and they need help cleaning up.

The attitudes of homeowners will have to shift to be accepting of this option of the reverse mortgage. Its not a new option, reverse mortgages have been available since 1990 as a HUD based product but it existed before that as a bank created program and that history still carries weight today as some believe this is the program where the “bank takes the home”. That was the case before HUD intervened on the newest incarnation- the HECM or Home Equity Conversion Mortgage. This newest version (almost 20 years old now) protects the homeowner from the bank someday taking the home from them regardless of remaining principle or equity. The 2% mortgage insurance premium (MIP) taken at settlement as well as the ongoing .50% added to the rate each month ensure the homeonwer retains title until their passing or moving away. Taxes, homeowners insurance and property upkeep are required, but they will no longer have monthly payments of any type to pay back the loan. Reverse mortgages are typically paid back after the passing of the last remaining homeowner by the sale of the home by the estate and any remaining equity goes to that estate.

The same estate that was managed by the financial planners and estate planners will have to at the very least consider the use of the home’s equity to make up for the 10% equity loss and $2.3 Trillion in investment losses if it wants to replace the lost cash flow those 2 could have provided. This is the same cash flow that can be used to pay off the average 53% in mortgage debt for those 65 and over as well as credit card debt, remaining installment loans, increased property taxes, increase health care costs and generally, the increase overal cost of living without reducing the quality of living. With the recent increase in the nationwide lending limit to $625,500 and the addition of product such as the reverse mortgage for purchase program, there are now MORE products for MORE of our seniors than ever in the plight to recover access to cash.

For those that have found this site useful in better understanding reverse mortgages, please share the information with your financial planning group or estate planning representative to at least get them thinking about using a reverse mortgage to help increase your monthly cash flow where other plans (maybe their own) have fallen short. A reverse mortgage can be used to clean up after you thought all could have been lost.

Bills are not being paid, you’re not able to go to your favorite restaurant whenever you want to, you go to sleep with the same concerns you woke up with, you put off the trip to see your family over Easter. Life is not being…lived.

Pride may be in the way of your moving toward a solution with a family member, friend or even someone at your church. You most likely don’t have a solution in mind, you need a hand to determine just what will have to take place to break you free of what is holding you back. The ads on the radio and TV about being behind on your bills sounds too good to be true, there’s got to be a catch in all of that somewhere or the fees are upfront and that’s what you are short on. So how do you know if a reverse mortgage is for you?

You don’t.

You don’t wake up one day and say “I’m on my way to the bank to get a reverse mortgage”. More than likely you say, “I have no idea how I’m going to pay the mortgage, the car payment, get the lawn mower serviced before spring, buy all the mulch from the church for around the front of the house, pay the credit card bill(s), the last big heating bill AND have enough left to pay for groceries for the month. My fixed income is not enough to keep all of this going without something changing.”

Break down your bills, take a look at all the money you spend each month and see what you can most quickly affect. As a retiree there are many options available for those on fixed incomes that do not exceed certain limits. You can get assistance on your heating, on your taxes, on home weatherization needs; there are folks you can work with to help you with your credit card costs, they can work with your bank to get a more manageable monthly payment. If you are not on a fixed income but take monthly draws from your retirement portfolio and are concerned you may be taking too much to allow you to continue to live this lifestyle, you have options there as well. Its all about cash flow. Cash flow. Think about what you have coming in each month and what you are sending out each month. How much of what you are sending out can be stopped? You have to pay the electric, the phone, the food and insurance, you have to pay the car loan or they take your car, and you have to pay your mortgage or they take your house. Right?

Most likely, if you are over 70 years old and still making mortgage payments, its probably taking a big chunk of your monthly cash flow each month. Some more than others. No reason to judge why but there was a large group of retired Americans that refinanced their homes on the upward appreciation slope to pay off credit card bills, upgrade the kitchen, add the sunroom, take a trip, etc. and now that monthly payment is keeping them from paying other bills essential to their well being. In the paragraph above you listed the necessary payments that you HAVE to pay each month or disastrous things will happen. You have to pay your mortgage first and everything else comes after that, right? What if you didn’t have a mortgage payment? What if you could pay off the mortgage using a HUD insured reverse mortgage (technically called a Home Equity Conversion Mortgage or HECM) and never have to make a mortgage payment for as long as you live in your home but still be able to retain title on the property and call it your home? That would free up the cash flow that you were sending each month, the principle and interest payment you make each month that barely seems to decrease the payoff of your home mortgage.

You can now keep that monthly amount in your pocket, in your check book, under your mattress, in the coffee can buried in the backyard, whatever you want. Its your money but when a reverse mortgage is used to pay off a large ticket item like a regular mortgage, you will see positive cash flow like you have never seen before. Here’s a very simple example that came from the frequently asked question section of this website where someone was able to experience a 22% increase in monthly cash flow.

The question was- My parents are 77 & 76 & have $45000 in cred. card debt (they’re charging living exp & med. exp-no luxuries)& owe $64000 on their house valued at about $120000. I have talked to an elder care att. who advised me to get POA (which they’re ok with) & to try for a rev. mortgage 1st (which he doesn’t think they’ll qualify for) or declare bankruptcy. 2 bankers i’ve talked to are totally against rev mortg. My parents would be devistated if they lose their home. Their only income is $2067/mo & have exhausted their savings. Also 2 of their cred cards talked her into credit prot. & the charges for that over the yrs adds up to thousands. I’m trying to get all the options I can to present to them. They’re overwhelmed.

Our answer was- Based on their home value, they can pay off the $64,000 mortgage and have approximately $13,000 left over to help them pay down the credit cards. The money they are spending on their mortgage each month (approximately $450 at 7.5%) can be kept in their bank account or also put towards the credit card debt. Paying off the mortgage will help them from losing the home as they will never have to make another payment on the home for as long as they live there. They will have to maintain the property as well as any taxes and insurance which they have already been paying. This would keep them from being overwhelmed and you may be able to help them negotiate a payment program for the credit card debt as the banks are willing to work with folks once they see they are at risk of losing more.

For them the reverse mortgage would be like taking a part time job as it leaves more money in their bank account at the end of the month. Who wouldn’t love a 22% increase in their monthly cash flow each month? That’s like the raise of a lifetime.

How do you know if a reverse mortgage is for you? You won’t until you take an assessment of your monthly bills and then you may understand better.

Everyone has played poker of some type, regular 5 card poker or the more popular hold ‘em game. Two pair are better than one but a full house beats that two pair. You can beat a full house too but when you’re holding the full house, you think you’re in pretty good shape. Of course its a play on words but a full house in the world of reverse mortgages means a home that’s full of equity and flush with cash. Cash is king and if you have cash you may not be experiencing the problems that others may be dealing with in this economy that Warren Buffett said has fallen off a cliff. Having cash is like having 4 aces in the poker game, there’s not a whole lot that can beat it other than the Royal Flush. That’s what it would be called if it ALL fell apart, the Royal Flush or Royal (insert not nice words here). Cash instead of having mortgage payments is a good thing. Cash instead of a deteriorating retirement portfolio is a good thing. Cash instead of putting the family vacation on a credit card is a good thing. CASH IS A GOOD THING and there is no disputing that.

We are hearing more and more folks talk about considering a reverse mortgage (HECM) to allay their cash flow concerns but are held back by the reputed high fees and wants of providing something for their heirs. They are sacrificing today, they sacrificed during the depression if they are old enough, they sacrificed their own time and wants so their kids had a better life than they did and they just need a good hand to be dealt to them. A reverse mortgage can put four aces in their hand when their other option is a pair of twos.

Attorneys that deal with Bankruptcy and Foreclosure are really beginning to see the strength and appeal the reverse mortgage has for those at risk of losing homes and valuable credit. Elder law attorneys and financial planning types are up against the pressure that the market has put on their clients portfolios and are just now starting to lean toward the reverse mortgage as a helpful tool for providing the much needed cash flow. Its not a magic pill nor should be only be considered as a last resort because there’s often a great deal of emotional and financial damage done before most step towards a safe and sensible method to stave off loss of income, portfolio values or increasing debts.

Recent changes have seen the reverse mortgage being used to help folks purchase homes where credit and income are not considered. The nationwide lending limit has increased to $625,500 and is immediately helping those with higher mortgages pay those off and free up the cash flow that was used to make those payments. Positive changes, all meant to help, not hinder and all have been blessed and insured by HUD.

Hundreds of thousands of homeowners have been helped in the past 2 years by obtaining a reverse mortgage to help increase their cash flow. That’s a winning hand older folks are willing to bet on.