Reverse Mortgages have a less than stellar reputation; in fact, many Americans, retired or not, continue to see the reverse mortgage as a “loan of last resort” or a loan to take out when there are no other options left. In fact, many Americans think taking out a reverse mortgage either means you are poor or uneducated because there is no way a financially savvy senior would even take out a reverse mortgage.
The truth about reverse mortgage, however, is something else entirely. The first hurdle is making sure a borrower understands the reverse mortgage and, most importantly, realize that the reverse mortgage is a way to use the untapped equity in the home they’ve paid for throughout their working years.
A recent article, published by CNBC, highlights how and why the reverse mortgage became a loan of last resort:
“The criticism of reverse mortgages is less with the product itself than with the way that people use them. ‘Free money’ has a tendency to encourage bad behavior — one reason the Federal Housing Administration requires borrowers to undergo a counseling session before entering a reverse mortgage contract. In other words, don’t use a lump sum payment from one of these to buy the Mercedes-Benz you’ve always wanted.”
A reverse mortgage should be a long-term retirement planning tool, and not just for cash strapped seniors, but for affluent seniors who have planned and saved for retirement. As with any financial product though, a borrower should know and understand their financial obligations, which include paying any and all maintenance on the property as well as keeping up with their property taxes and homeowner’s insurance payments.
Most importantly, a reverse mortgage is a flexible alternative to more traditional forms of retirement planning such as social security or 401ks or stocks and, with more Americans living a lot longer than ever before, flexibility is key.
For example, if the stock market has taken a downturn, it may be time to pull funds from the reverse mortgage line of credit in order to sustain retirement expenses while the market stabilizes. Another example may be to set up monthly reverse mortgage payments to help supplement social security payments and cover retirement expenses.
These are just two of the ways reverse mortgages can adapt to a retiree’s situation, not just at 62, but also at 72 or 82. For example, a potential retiree may be saving at 62 for retirement but may need more cash flow at 72 as they adjust to their new needs and wants. At 82, fixed expenses may be set and monthly payments may be more attractive than they were at 72.
Point is, things change, and so do retirement needs and a reverse mortgage is a way to, not only sustain retirement but also ensure that it is secure and worthwhile.
Give us a call at (888) 845-6630 to speak to one of our brokers or email us at info@PSReverseMortgage.com. A reverse mortgage calculator is great to get started but it’s the personal touch that matters.
The reverse mortgage was a created to help retirees stay in their home without the need to keep up with monthly mortgage payments at a time when cash flow might not be optimal. In addition, borrowers who also owned their homes free and clear could tap into the home equity they accumulated throughout their working years and leverage it during retirement.
Something happened along the way that increasingly painted reverse mortgages in a negative light and, suddenly, a financial product that was created to help seniors became the “most misunderstood mortgage” there is. Even more confounding is the fact that many financial experts and academics find “no rational reason” why many older homeowners remain hesitant to tap into their home equity.
A recent article in Reverse Mortgage Daily interviewed Steven Sass, a research economist at Boston College’s Center for Retirement Research, about the familiar behavioral roadblocks many retirees have about the reverse mortgage and the financial industry in general.
At the top of the list is a fear of getting into debt late in life and the satisfaction that comes with owning a home free and clear. These are two things that are not inherently bad but can cause problems for future retirees.
For example, the article mentions the fact that Social Security may be non-existent in the future and newer generations are saving less and less so where do future seniors obtain cash flow for their retirement needs: the equity in their home. Equity is a funny thing, many people don’t think about it until they need it but it’s an important source of cash flow. More importantly, it’s an option to supplement income and diversify assets in an ever-changing environment.
In a perfect world, a homeowner takes out a reverse mortgage line of credit at 62 and lets it grow, untouched, as a “rainy day” fund for the future but, like equity, many homeowners don’t think about the reverse mortgage until it is necessary and, by then, it may be too late.
“If you have a sufficient income to cover your expenses, is there any great need to go out and secure this line of credit or get the money?” Sass asked rhetorically. “So I think people might need some impetus to use a reverse mortgage.”
Warning Signs That Your Parents Need Financial Help
Talking about your finances is never easy. Talking to your parents about their finances before or during their retirement can be just as difficult.
This is the situation many loved ones and caregivers may find themselves in at some point as their parents get older and they need their help managing their finances.
Most importantly, parents should feel their children are there to help, no matter what, and feel safe talking about their finances openly.
If children feel they would have a hard time talking to their parents about their retirement planning and the financial stability of their plans, here are a few warning signs to watch out for:
Ask Them About Their Health
Firstly, children should gauge their parent’s health for any signs that it may be deteriorating. If this is happening, it’s crucial to notice as soon as possible, in order to take the necessary steps to protect their parents should they fall ill in the future.
Look For Irregularities In Their Spending
Most people are used to checking their bank statements once a month when the statement comes in the mail, but when it comes to retirees, their adult children should become more involved and track spending more often than it’s customary.
Notice if bank statements reflect excessive statements or buying the same things over and over as this could signal more troubling health issues in the future. If looking at bank statements is too uncomfortable, look in their pantry. See if they have something (like rice or ketchup) that is piling up; it could be an early warning sign that something is amiss.
Talk To A Financial Planner
In addition, children should seek help, along with their parents, in determining if their parents have enough cash flow to sustain them long into their retirement. As people live longer than ever before, retirement planning should reflect the changes in the times, predicting longer survival than just a decade after retirement.
If children of retired parents notice retirement funds are dwindling fast or there is a strong possibility their family members may outlive their funds during the length of their retirement, they should seek out guidance from financial professionals as well.
In addition to medical illnesses, children also need to consider unexpected financial hardships such as freak accidents. It’s hard to think of a time when parents or family members may be ill because of one reason or another, but being prepared is part of the solution.
How Reverse Mortgages Can Help
Reverse mortgages can be part of the solution for long-term retirement planning as well, even when more traditional methods of retirement planning are in place. It can give retirees the necessary financial cushion for the unexpected expenses as well as paying off any remaining mortgage or HELOC debt so that those monthly payments can be put to use elsewhere such as a savings account.
Financial stability is always important but even more so during a time when retirees should be relaxing or volunteering or working because they love what they do or are beginning a third career, not because they need to pay their monthly bills or are struggling to do so.
This blog was written with the help of Dennis Coral, vice president and financial advisor, at SunTrust Bank Wealth Management.
Interested in a reverse mortgage or simply want more information? Give PS Financial Services a call at (888) 845-6630 or via email at info@PSReverseMortgage.
What to Do If You’re Denied a Reverse Mortgage
Occasionally, we get calls from borrowers who were in the process of obtaining a reverse mortgage and found out they were denied by their current lender.
When reverse mortgages were offered by big banks, such as Bank of America and Wells Fargo, borrowers would also find themselves denied for x,y,z reasons and unable to continue the process of getting a reverse mortgage.
Back then, it was usually because of conservative appraisal guidelines by those lenders, and we would take those clients and find a lender who WOULD get them approved and closed.
Historically, qualifying for a reverse mortgage has been easy because it was simply based on your age (62 and over) and having enough equity in your home, while credit and income, for the most part, was not a factor.
Thirty days after March 2, 2015 begins a new era in reverse mortgage qualification:
Future borrowers are now subject to a credit and income approval like no other in mortgage history. Regardless of the credit score being 800, they can still be denied or have money withheld in a “Lifetime Escrow Set Aside” or LESA. This denial can be possible if the property taxes are behind, or other reasons even if the credit record is clean.
For those who were denied a reverse mortgage, they should consider the benefits of working with a broker like PS Financial Services, especially with the financial assessment looming.
For one, a brokerage works with more than one lender, building relationships with each of them and getting to know what a lender would accept and what it would not. If a borrower is working with only one representative of a big name lender, they are at the mercy of that one lender’s rules and regulations.
At the same time, there are brokers who specialize in regular (forward) mortgages. They might have 1 or 2 reverse mortgage lenders just in case they find that 1 client per year. In that case, they will have far less knowledge on how to close a reverse mortgage with a borrower who has Financial Assessment issues or less than enough lenders with whom to shop the mortgage.
However, because a brokerage works with more than one lender, especially if they are specialized in the reverse mortgage, as soon as they know a borrower’s specific situation, they can ascertain which lender would be most comfortable with the borrower’s file and which would not. Not all lenders are created equal and not all have the same hurdles to overcome, so the more in-depth knowledge the broker has regarding the reverse mortgage AND the financial assessment the smoother the process will be.
Additionally, if a borrower’s file has a setback and the underwriting department of a big lender has already formed an opinion, a big lender only has one way to go. A broker, on the other hand, can work with additional lenders to find the right fit for the client. While not every person will qualify for a Reverse Mortgage Loan, working with a broker can make the process easier. In many cases setbacks are issues brokers have dealt with before, so they can quickly determine the best course of action moving forward.
In some cases, the borrower can share their preoccupation or setback with the broker beforehand, which can send the details to more than one lender and see how each responds according to their own rules and regulations.
The fluidity of a brokerage versus a big lender is something that borrowers should be privy too and use to their advantage. While a representative of big lender carries the reputation of the company they work for, it’s important to note that a brokerage works with the same lenders as well, except without as much constriction as a representative.
Most importantly, a representative of any big lender is usually working for the retail side, as opposed to brokers who only work for the wholesale side.
I’ve used this example before, but it illustrates the difference perfectly:
Simply put, a broker has more options than a representative of a big lender and a brokerage specialized in the reverse mortgage has enough knowledge and experience to know how to proceed with any file.
If you’re denied a reverse mortgage, contact PS Financial Services at (888) 845-6630 or info@PSReverseMortgage.com and start working with, not only a brokerage but a brokerage experienced in reverse mortgages.
An Alternative to Nursing Homes With the Reverse Mortgage
When I recommend and go over the in’s and out’s of reverse mortgages with clients, one of the fears they have is that that the reverse mortgage will become due and payable if their health fails and they need to move into a nursing home.
However, a reverse mortgage is one of the retirement planning strategies that can be used to secure long-term, in home care without having to move from the comfort of your home.
According to data collected by Genworth Financial, Inc., a private room in a nursing home in Florida is more than double the cost of receiving long-term, in-home care. On average, homemaker services and home health aide cost around $40,000 per year while a private room costs, on average, $90,000.
How to Protect Your Spouse Even if They’re Under 62
There were many reasons why non-borrowing spouses were removed from title and were not included on the loan when their spouses first obtained a reverse mortgage.
Over the years, there have been many reasons as to why a borrower has removed their spouse from title: whether it be because they were underage at the time the reverse mortgage loan was originated or because they were considerably younger than their spouse, thus making the amount of funds received from the program lower than expected, the non-borrowing has always been a point of concern for many in the industry.
Sometimes, to fully pay off the existing mortgage on the subject property, a borrower had no choice but to leave their spouse off the loan or not be able to pay off their mortgage fully, if at all.
Thankfully, spouses, both over and under the age of 62, are now under the protection of the reverse mortgage loan since August 4, 2014.
**It’s important to remember that the non-borrowing spouse protection rules applies only to loans originated on or after August 4, 2014**
History of the REVERSE MORTGAGE
- The Reverse Mortgage (RM) first started in Great Britain.
- 1961: The first reverse mortgage in the U.S. was done by Nelson Haynes of Deering Savings and Loan for Nellie Young of Portland, Maine because she wanted to stay in her home despite the loss of her husband’s income. This reverse mortgage, however, was not insured.
- 1983: The first congressional hearing regarding reverse mortgages takes place. The Senate approves a proposal to insure reverse mortgages through the Federal Housing Administration.
- 1988: The program was re-introduced by President Ronald Reagan with FHA insurance.
- 1989: The first FHA-insured HECM loan was done for Marjorie Mason of Fairway, Kansas.
Planning for Retirement the Smart Way…With a Reverse Mortgage Loan
The recent announcement of the financial assessment, which is to be implemented on March 2015, has sprung a slew of news stories describing the potential benefits and risks of the reverse mortgage loan.
Despite the fact that positive press was up in the months of June and July, there is still a negative stigma associated with the reverse mortgage, and I am not talking about the fear of losing your home this time. In fact, what called my attention in the article, Reverse Mortgage Loans: Are they worth the risk?, was something else: closing costs.
Reverse Mortgage Financial Assessment Will Take Effect on March 2015
The Department of Housing and Urban Development has finally announced that the financial assessment will come into effect on MARCH 2015.
While the financial assessment was previously announced as an upcoming change last October, it was not implemented in the past year. Next March, however, the financial assessment is poised to be one of the biggest changes in the reverse mortgage industry while adding another safeguard for future borrowers.
Positive Press Surges for Reverse Mortgages During June
The recent changes to the reverse mortgage cam swiftly last September 30 and changed the landscape of the reverse mortgage program for future borrowers.
One of the biggest hurdles since the changes, however, has been combating the established reputation of the reverse mortgage program as a “loan of last resort,” that should only be used if (and only if) you have no other options.
Slowly, but surely, the reputation of the reverse mortgage is on the up and up and, NRMLA reports, the press results for the month of June 2014 are the most positive since August of 2013.
Nationally, states the article, there were 195 positive stories last month and just 14 negative, a 13:1 ratio or 93% of a favorable result.