Making Sense of Reverse Mortgages Information you need to make a good decision!

October 29, 2013

How Reverse Mortgages can Benefit Older Divorcing Women

Filed under: divorce,financial planning,Reverse Mortgage — Scott Larson @ 9:20 am

Forbes.com has an interesting piece in their Personal Finance column by Jeff Landers about “Grey Divorce”  and it’s impact on older women.  There are significant differences that have to be addressed due to the amount of time left to “recover” financially, when compared to a younger cohort.

When considering whether to keep a house affordability is a primary concern, and if a woman is in a position to set up a reverse mortgage when she reaches 62, it may impact her decision whether or not to fight for the house in a divorce situation.  It is only a small part of the divorce decision, but once again a reverse mortgage could be useful tool in the right situation.

One other thing to consider is how the memories will impact the decision to stay.  Having been through a divorce myself, and also when I lost my father, a decision had to be made regarding real estate.  You need to consider if the memories are positive, or if they impact negatively on your willingness to stay in the home.  If the decision is to stay, a reverse mortgage may be a tool to help.

To read the Forbes.com article, click here

October 22, 2013

Reverse mortgages as a financial planning tool

What’s the first thing you think of when your hear the term “reverse mortgage”

Bad?  ripoff?  Wow, Fonzi has gotten old…

What you should start thinking of is financial planning…

The Wall Street Journal recently published an article highlighting a use of a reverse mortgage that I have been recommending for years.  As we learned from the financial crisis, even though you may need money, it is not always the best time to sell your assets. Whether it is stocks or real-estate, the markets move independently of your needs.

For a wealthy, or even not so wealthy, retired borrower, this can obviously present a problem.  Your assets need to last as long as possible and you would like to wait for the market to recover before selling your assets…

You are 62 and you were just laid off.  Social Security is available to you but you know that if you can wait until age 65 that your social security will be substantially higher…

You don’t mind selling the assets, but you want to shift the tax burden of that transaction into next year…

You want to balance out your interest payments with the sale of an asset without harming your cash flow

These are all examples of where a reverse mortgage can be used as a financial planning tool to help buffer the winds of financial change.  Setting up the reverse as a line of credit allows a senior to make a choice of where to draw the assets they need, without impacting their cash flow.

“Retirement is really about cash flow,” says Martin James, a certified public accountant in Mooresville, Ind. in the WSJ article

Traditionally financial planners recommended a home equity line of credit for this purpose, but many homeowners were taught a hard lesson when their credit lines were cancelled by the bank, in spite of perfect payment records, or even though they carried no balance!  One of the benefits of a reverse mortgage is that the line of credit cannot be cancelled.  Then add an additional benefit of no payments being required and you have an incredible planning tool.

This has been studied by financial planners at Texas Tech University.

The researchers used what they called a “standby” reverse-mortgage strategy, meaning the reverse-mortgage line of credit served as a source of readily available cash when retirees’ portfolio values dropped below the level where they could meet their goals.

Using a portfolio worth $500,000 and a home value of $250,000, among other assumptions, the researchers found that using a reverse mortgage’s line of credit significantly improved the chances the portfolio would last through the retiree’s lifetime, because it reduced the risk of having to sell investments when they had fallen in value.

We’ll cover this more later, but maybe now the first thing that crosses your mind when you hear reverse mortgage is… Maybe I should learn more…

To read the WSJ article click here

 

October 16, 2013

Nightmares are no longer available

Filed under: Uncategorized — Scott Larson @ 9:32 am

My brother brought an article to my attention about a reverse mortgage that was a nightmare situation for a family in New York.  This loan, done in 1997 (16 years ago) truly was a nightmare with two extremely costly provisions, a 50/50 equity share, and a required purchase of an annuity.

So first off… THIS IS ILLEGALhas been for years!

But take a look at the article, this is what can happen when you are dealing with unscrupulous people that are more interested in the money than the senior.

My irritation with the article, at least the main one… well one of the main ones… is near the end;

Reverse mortgages, even today’s friendlier versions that offer upfront counseling, can be hazardous to elderly borrowers’ financial health and potentially costly for their heirs.

Getting old is hazardous to a seniors financial health…  you have to buy things… like food, or prescriptions,  or pay taxes.  Any bill is “hazardous” when you don’t have additional income coming in.

and, yes… reverse mortgages can be costly… but let’s compare a reverse mortgage in the “real world…  Mortgages are costly… selling a home is costly… getting in-home care is costly…

And finally, we should not be worrying about the heirs.  Let the heirs fend for themselves!  And please… Don’t hear what I am not saying... I am not saying that we should not try to preserve the seniors estate… what I am saying is that the senior should use their own money for their own benefit first.  They worked for it, they earned it, they should use it if they need it!

My other irritation is… whoever sold these products should be prosecuted to the full extent of the law!   I am not absolving the senior, and their family from responsibility – I have never seen a mortgage signed by accident – but this is another reason you should fully investigate the people that you are working with.

And finally the conclusions

Just as a car build in 1997 is not as good as a current one, a 1997 reverse is not the same as one that is being offered now.  Protections and regulations have made this a much better option – Not for everyone to be sure – but a good option when it is appropriate.  It is a financial tool.  Just like a hammer that can be used to build a house, or to commit a murder, when it is appropriate it is a good thing.

And finally… use someone you trust.  if it is me, great, if it sis someone else, great – but make sure that the person know what they are talking about and don’t push you to make a decision.  Also make sure that your friends, family, attorney, financial planner – someone you trust in your life is helping you.  if the reverse mortgage rep does not want to talk with them, answer their questions, find another rep!

 

 

October 14, 2013

The Caregiving dilemma – losses and rewards

Filed under: caregiving,Reverse Mortgage — Scott Larson @ 4:21 pm

CNN posted an article that outlines what many of us have or are dealing with. Caregiving for your parents… you can take a look at the article here.  One of the decisions that I made is that I couldn’t do it…

We all have to look at our gifts and see if they match with the needs of our parents.  Mine did not match up to true caregiving.  That’s not to say that I was not there… I was… felt like all the time.  There are wonderful gifted people that have that set of gifts, and they are hugely important.

Caused me some distress for a while – shouldn’t I be there for Mom?  And the answer was yes… but that does not mean that you have to do everything.  Balancing that is part of the art of dealing with parents (with everything really), and part of my balance was hiring a caregiver so that I could be there long term in a way that blessed her, and allowed me to survive.

If your choice is to do it yourself – Go for it!  But make sure that you take care of yourself.  In-home agencies can be hired for respite care, or many assisted living communities will take your parents for a “vacation” in their facility to allow you to get away.  Make sure that is part of your plan.  Also take a look at caregiving.org for other ways to make sure your plan is sustainable…

October 11, 2013

Three Horsemen of the Retirement Apocalypse

Filed under: Reverse Mortgage — Scott Larson @ 9:06 am

Time Magazine (remember them?) has a story out saying that the three pillars of retirement
Social Security, employer sponsored plans and personal savings have all weakened over “recent years.”

Hmmm… Ya’ think?  They have some interesting perspectives on what might happen, but it doesn’t appear that their recommended “out of the box” thinking includes reverse mortgages…

Th Time story can be found here and Blackrock’s report on retirement needs can be found here (more on that later)

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