REVERSE MORTGAGE INFORMATION: Tools, News and Resources to Help Seniors Decide

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.

Your hair stylist hears all your stories, the ones about your kids, your sister and how you used a coupon at the grocery store and saved over $2.00 on a jar of spaghetti sauce. She has a recipe for brownies that will knock your socks off and remembers that your grandson was 2 grades short of straight A’s last marking period. She curls and colors your hair, she washes and blow dries your hair, she’s very dependable and “knows” your style but does she really know how a reverse mortgage works? Does she really know that someone lost their home to a reverse mortgage or is she repeating something she heard from someone else that heard bad things?

That is what happened to a recent client of mine. After undertaking a housing counseling session with a HUD approved counselor and after sitting down with her financial planner who referred her to me, she agreed to move forward with the process but stopped after a 30 minute haircut. Her call to me was very uncomfortable for her as she couldn’t really tell me why she did not want to proceed but after some very earnest and honest questioning, she admitted that her hair stylist knew someone that had their home taken from them after getting a reverse mortgage. I didn’t push, in fact I told her she had been in the drivers seat the entire time and that we could catch up later if something changed in regard to her monthly cash flow needs but before we parted on the phone I asked if we could call her hair stylist together and get the details of what happened with “that other person” who lost their home. She agreed which really surprised me, and I put her on hold to call the number she gave me for her hair stylist and we called her together. Guess what? The hair stylist didn’t know anyone that had ever gotten a reverse mortgage, but she had heard that it happened through another contact. I asked her point blank to describe the details and she admitted that she didn’t know anything at all about how they work but had heard they were no good. I would have settled for the fact that she thought they cost too much money but all she heard was they were no good.

My client settled the following week and is so tickled she’s going to get her hair done.

Here’s how in 7 simple steps:

Be 62 or older and have a home with current value exceeding $625,500.

Have a desire to no longer make mortgage payments (anymore) for as long as you live in your home (a $330,000 loan carries a $2030 payment at 6.25% that you would no longer have to pay).

Have a desire to increase your monthly cash flow and remove the stress and anxiety you feel each month you make that payment.

Set up a meeting and have a discussion with a HUD certified reverse mortgage housing counselor about your interest in a reverse mortgage.

Sign a HECM application generated by an FHA certified bank, broker or lender.

Go to settlement and watch your mortgage disappear and know you will not have to make mortgage payments anymore and you’ve just increased your cash flow by leaps and bounds. Take the pressure off of your retirement portfolio that you may be drawing against while it continues to decline in value.

Enjoy your new lifestyle and ease your anxiety away.

With the new nationwide lending limit recently increased to $625,500, those 62 and older still making monthly payments on significant mortgages can get rid of those payments and keep that money in their pocket each month with the help of a HUD insured Reverse Mortgage.

Someone 65 years old could gain access to up to $350,000, someone 70 could gain access to $378,000, someone 75 could see up to $409,000 and someone 80 years old could gain access to up to $441,000.*

*(These numbers are based on rates for March 5, 2009 and can vary according to the 10-Year Treasury, industry margins and state recordation fees.)

Numerous articles on this website and others have shared the many aspects where there is so much pressure on the senior homeowner at this point; their retirement portfolio has taken hit after hit, their healthcare costs have risen, fuel costs have risen, their property taxes may have risen and as they age they may not be doing all of the home handiwork and maintenance so their costs to maintain the home may also be rising. Their home has fallen in value (the median home value has fallen over 20% since its peak in 2007) and, a portion that is probably higher than most would be not believe, many of those are still holding some type of mortgage. During the boom years many seniors used home equity to add sunrooms or extra rooms, replace windows, or upgrade older kitchens. As their home continued to increase in value some felt moved to use some of that extra “value” to pay for non essential items such as vacations, big toys like recreation vehicles, boats and even vacation homes and some just used their home to pay off higher interest rate credit cards. Now some folks are finding it harder and harder to keep up with the monthly cash flow demands these items have cost them- what to do? Sell the boat, sell the vacation home?

CNBC today shared a great point on the amplification of the economy’s effect on baby boomers and those already retired. We have been voicing our concerns for some time about both the investment market value and home values and a great point in the article conveys that since more folks are homeowners than they are investors, the average wealth of America is more defined by their real estate than their investments. Those with no or very little in investments have only their homes to rely on and with the mortgage business in its current state, there are fewer and fewer programs for fixed income borrowers such as the retired for which to dip into. A reverse mortgage should not be ignored for those seeking access to cash where its not possible to dip into savings.

The reverse mortgage can be used for anything you want so if the windows need replaced or the kitchen needs an upgrade, you can do that but the best part about the reverse mortgage is that it can also pay off the mortgage you took out to do the upgrades but you no longer have to make payments on those things. You will not have to make another payment on your mortgage as long as you live in your home when a reverse mortgage is in place.

Another part of the CNBC article that grabbed our attention is the part about the tax increase on dividends and capital gains. Take the retired homeowner that draws a certain amount from their retirement portfolio each month or year- if that draw will now cost them more, they may be more inclined to look for other sources for cash and the reverse mortgage can be a supplement or that source.

What if everything you believed to be true about something was false, what would you want to know about first? There is without a doubt more misinformation about reverse mortgages than their is good information. What do you want to know about reverse mortgages, please call the toll free number 866-599-1391 or visit the bottom of this page to pose your question and someone will answer it for you.

The mortgagee letter 2009-07 was released today setting the new nationwide lending limit for reverse mortgages (HECM) to $625,500. This was changed as a result of the American Recovery and Reinvestment Act of 2009 (ARRA) that was signed into law February 17th of this year.

For a time period between now and April 30th, if you were engaged in the process of obtaining a reverse mortgage and your home was worth more than the previous amount of $417,000 you can chose to use the lower lending limit versus the higher limit. The difference will be in the HUD based Mortgage Insurance Premium (MIP). As an example- if your home is worth $550,000, the MIP would be $11,000 under the new plan but $8340 under the previous plan- a $2660 difference. Of course your net principle limit would also be based on the lower lending limit but you have that choice until April 30th.

With the new limit, someone 75 years old in a home worth more than $625,000 could gain access to somewhere around $420,000, whereas the previous limit gave them access to roughly $280,000- a 50% increase. All circumstances are different and you can find out which plan works best for you by submitting a request for more information at the Express Quote section in the upper left hand section of this website and someone will contact you within 2 hours or you can call the toll free number 866-599-1391 and be connected to someone that can answer all of your questions concerning this new bill and just about everything else regarding reverse mortgages.

If a study by Scottrade is correct and up to 75% percent of boomers are fearing full retirement, what does it say about those already retired? These are the folks without ready means to increase their income, the same folks taking from a retirement portfolio that continues to be pressured in its assessment. Most likely these are the same folks that have lost up to 25% of their home’s value and most likely still have portions of their retirement in a stock market that continues to decline. They are already retired and with unemployment close to 10% in some parts of the country, finding a job after retirement to add more cash may prove to be an almost impossibility.

The majority of these folks do not have money managers or financial planners giving them advice on where to run for safe harbor nor do they tend to spend their money with estate planning or elder law attorneys on protecting their assets as they age. Again, the majority DO NOT tend to have professional guidance. Even those with professional assistance but who are feeling the pinch are still on the fence when it comes to taking measures to move to safe harbor or taking other means. Some have put off the annual trip or family vacation, some have sold or are considering selling the vacation home, the extra car, cut back on dining out; all in an attempt to cut back.

More and more elder law attorneys and financial planning agents are looking at assisting their clients in finding ways to supplement their cash flow and up to now have not considered the client’s property for that means. A reverse mortgage is becoming more popular as a way to supplement retirement income that up until now included social security, pension and draws on the portfolio. Its a tax free way to gain access to money on demand and it takes the pressure off the portfolio that is dwindling in value, even before providing taxable cash from its holdings.

The new stimulus package is creating an increase in the national lending limit for reverse mortgages to $625,500 and as an example, someone 75 years old in a home worth equal to or more than this new limit could gain access to roughly $415,000. That amount could be considered a retirement account for those without other means. The money doesn’t have to be spent, in fact, its best used in a credit line growth account that grows over time and provides tax free cash to the borrower upon a withdraw. The money isn’t put with a bank as some have inquired, the money remains as equity in your home, locked from a decline in value until you take access to portions.

Lets put another way. If you need access to cash for any reason at all and you have sufficient equity in your home a reverse mortgage can provide that much needed cash. You as the borrower do not give up title to your home, you do not give up how you can spend that money. If you had access to $415,000 and needed money to pay off a mortgage or a large amount of credit cards, you take out only the amount you need and leave the rest in your home’s equity (credit line) and THAT amount continues to grow over time, regardless of your home’s value. You do not have to put that money in a bank of any type or leave it somewhere that you are unsure how its being handled- YOU control where it resides and as it grows in value you can take from it as you wish with NO taxes on that amount.

Financial planners and estate attorneys are slowly recognizing that a reverse mortgage can play a significant role in bringing an amount of certainty in a system with many unknowns.

This website has often mentioned the notion of having financial planners consider the use of reverse mortgages as possible tools in their planning arsenal. Some financial planners are up to speed on the effective cash flow capabilities a reverse mortgage can provide and others are not very well versed on all aspects of the product. As has been said before that its not an indictment of their effectiveness but we feel some planners think they can provide practical advice with income and investments and they don’t touch the home except as last resort. We’ve penned the use of the phrase “pressure on the portfolio” on several occasions as well as challenging planners and elder law advisors about the “certainty” that exists when a reverse mortgage is used to create cash flow for its users.

We’ve received a bit of indirect validation today on our thoughts from a publication www.financial-planning.com that echos our sentiments almost to the word where they interview financial advisors from around the country on concerns regarding retirement and the how the aptly named “Fall of 2008″ has affected them. Judy Ludwig, vice president of financial planning services at Braver Wealth Management in Newton, Mass mentions in the article that some are curtailing their spending “while they wait for their portfolio to recover”. We have mentioned that on more than one occasion here and here. She later mentions something that rides along with the certainty issues in the previous paragraph that many clients are focusing more on the guarantees bank accounts provide for their cash reserves, saying “I can’t remember hearing as much talk about CDs as I have recently.” Judy herself doesn’t appear sold on reverse mortgages suggesting that the client could arrange for a sale-leaseback with a younger family member. That’s great advice and a suitable alternative but what if that younger family member already has a home or can’t make this work? Another question for another article maybe.

The well written article by Donald Jay Korn specifically mentions reverse mortgages to help with cash flow concerns. Frank Butterfield, principal at Homrich & Berg, a wealth management firm in Atlanta, says “We had always ignored the house in our retirement projections, but a few clients might need to include their home equity now.” If a wealth management firm has a few clients in need of additional cash flow, imagine those without professional guidance that haven’t been able to put enough retirement away to warrant a professional’s advice? Where do they turn for advice?

A reverse mortgage is not for everyone as mentioned several times on this website and other places but it can be the RIGHT tool to supplement cash flow where someone’s income capabilities have fallen short and alternative resources are dwindling.