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

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 .

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.

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.

, a published Certified Financial Planner and author of 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 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 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, please email us with you comments or questions.

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 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 . They don’t think they’ll need help and they are making do in their current physical and financial position/condition.

Are you ready to be heartbroken?

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.

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.

A reverse mortgage gets a lifeline from the FED!

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 , 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 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.

I have a full house, what do you have?

Written by rmcinturff on Tuesday, March 10th, 2009 in HECM, HECM for purchase, New Lending Limit, Reverse Mortage.

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 . 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.

A reverse mortgage beats a Royal Flush

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.