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

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.

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.

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 , 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?

There are many resources for reverse mortgage information all over the internet, on TV commercials and in your daily mail. They all tell you that reverse mortgages are great financial tools for allowing you to live your dreams, that its a tax free way to increase your cash flow, that you retain title to your home and you can use the money for anything you wish. Those same resources also tell you to do your homework and to watch out for unscrupulous brokers and others out to get you. Some of them do a decent job of confusing the potential reverse mortgage borrower by improperly describing the ins and outs of the process, what you can and can’t do.

Really though, just how much money can someone get from a reverse mortgage They can use a whole plethora of reverse mortgage calculators but depending upon which calculators they use they may not be getting the whole picture.

Lets take a look at four scenarios to see how much is available for inquiring minds. We’ll look at 2 different properties but at 2 different ages, a $200,000 home at 65 and at 75 and a $450,000 home at the same ages. We’ll base these numbers on rates for the week of November 24th.

Right now because the expected rates are so low, 5.50%, the reverse mortgage is providing the maximum amount of equity access to the borrower as well as providing the lowest accruing interest rate for any money used, around 3%, so its a great time to get a reverse mortgage going.

For the $200,000 home:

A 65 year old borrower or a couple with the youngest borrower at age 65 will be able to get roughly $113,000. That is roughly 56% of the homes value. That $113,000 is tax free and can be used for whatever the borrower needs it for: paying off an existing regular mortgage, paying off credit card debt, fixing something that saps cash flow, or anything they need money for. That $113,000 can be taken as a lump sum or it can be paid as a lifetime monthly payment of $640 until their passing or moving from the home. That same $113,000 or a portion of it can also be put into the reverse mortgage credit line and the borrower can see that money grow to upwards of $136,000 in 5 years if left alone. Even a smaller amount left in the credit line can grow over time at current rates of around 3.60%. Those rates can change and right now they are at almost historically low rates so its quite possible to see them increase over time and therefore the credit growth rate will likely increase as well.

A 75 year old borrower in the same situation would see cash available of $130,000 or monthly payments of $845.00. That same $130,000 could grow to $157,000 in 5 years. That is roughly 65% of the home’s value at age 75.

Regardless of age, to initiate a reverse mortgage would cost the same and in this case its 2% of the home’s value for origination fee ($4000 in this example) plus 2% of the home’s value for mortgage insurance ($4000 in this example) and then the typical real estate transaction closing costs ($2000 to $4000). The total ranges from $10,000 to $12,000 depending upon which state you are in and their respective recordation taxes.

For homes over $200,000 in value, HUD has a different way to calculate origination fees and MIP fees. Those are done by taking 2% of the first $200,000 and then 1% of any amount over $200,000 up to a cap or limit of $6000. The next example shows how that breaks down.

For the $450,000 home:

A 65 year old borrower will be able to get access to $250,000 or $1400 a month for as long as they live in the home. That is roughly 55% of the home’s value. That same $250,000 could again be used to pay off anything the borrower wants or to let it grow in a credit line. Left alone in the credit line, that $250,000 would be worth at least $300,000 in 5 years or $361,000 in 10 years. In fact in 15 years, that credit line would be worth more than the current home’s value- that’s pretty significant because it would guarantee a borrowers access to cash regardless of their future home’s value. What institution or entity can guarantee future cash access like that and allow you to retain title to your home other than Uncle Sam?

A 75 year old borrower could get a cash return of $286,000 or $1850 a month for as long as they live in their home. That $286,000 could be $343,000 in 5 years or $412,000 in 10 years. That is roughly 65% of the home’s value.

The costs to get access to this much money breaks down to the following: 2% of the first $200,000 ($4000) plus 1% of remaining $250,000 ($2500) BUT with a cap of $6000 as the total origination fee, so in this case the origination fee is $6000. The MIP or mortgage insurance premium is 2% of the lesser of the home’s value or the nationwide lending limit of $417,000 and in this case its the latter. So the MIP will be 2% of $417,000 or $8340. The other closing costs are related to the same relative real estate closing costs and they range from $2500 to $6000 depending upon each state’s requirements which could include recordation taxes. That overall total could be from $16500 to $21000. Closing costs are usually financed into the loan.

Bottom line, the older a borrower the larger percent of their home’s equity they can gain access to with a reverse mortgage. As the examples above show a range of 55% to 65% of their home’s value, its possible that a 90 year old can get access to 80% of the value of their $450,000 home. For other scenarios, feel free to contact this website.

Lets quickly say that this is not a conviction upon the financial advisory business, they have and offer so many programs that at one time or another were completely unheard of but are now completely brilliant and perfect for so many- even in this marketplace. House values have plunged and the pressure on the portfolio is at all time highs AT THE BEGINNING OF THE BABY BOOMER RETIREMENT PARTY! Talk about a lot of pressure. Now that’s a lot of pressure.

There are so many products and services out there that its impossible for a financial planning organization to attempt to offer all of them. Not only do their clients expect their advisors to give them top level advice on stocks, bonds and funds; they are also expecting them to be up to date on issues pertaining to aging and health. With folks living longer than ever and trying to squeeze more income out of longer time frames than ever before, its quite challenging for even the most accomplished financial planning organization to “keep up with the times”.

Different phases of financial planning happen at different times of a client’s lives but now on top of the asset value loss they are experiencing, its made more complicated by having to pay for much higher costs of college for their children and since their parents are living longer, the clients often become amateur caregivers as well and sometimes end up sharing some or all of the costs associated with caregiving. A recent survey found that wealth preservation, estate planning and investment diversification are among the top areas where advisors need more training. To put all of this in place would be “forward thinking” but where does reverse come in. Do the advisors have time for training or is their time best spent protecting their assets under management and their client base?

Reverse mortgages can bridge the gap between the old way of thinking about wealth preservation, estate planning and investment diversification by alleviating the pressure all 3 put on each other. With a reverse mortgage, the client above could focus on his children’s education and allow his parents to use the reverse mortgage to help facilitate their care giving. A healthy grandparent could help take the pressure off their children by using the reverse mortgage to help pay for college for the grandchildren. That sounds too simple but its not being considered enough within this fraternity. The financial advisor truly believes they have the tools to keep the retirement engine running for their clients but as the survey suggested, they could use some additional help in some of those departments. Forward thinking would be looking ahead with an eye toward improvement and beyond past experience and outdated traditions.

The reverse mortgage today allows homeowners 62 years or older to gain access to portions of their home’s equity to be used to bridge a gap, fill a void or even right a wrong. The stigma has to come off the reverse mortgage, over 200,000 seniors took out a reverse mortgage the past 2 years and there’s no way to calculate the emotional drag reduced by setting these programs in flight when FHA introduced the product 20 years ago. HUD keeps numbers on originations, and fees compiled and average lump sums taken at time of loan closing but do they keep all the thank you’s, hugs and blessings the folks are giving that are receiving these loans? There’s no way to calculate that. Is there?

This article was generously submitted by

The news headlines have been screaming impending castrophe for the past 2 weeks- Fannie, Freddie, AIG, Lehman, and WAMU’s failure on Thursday. When is it going to end? It could get worse say some while others believe its an opportunity for the Fed and Treasury to make money on the $700 billion plan. In the midst of this insecurity, the one thing that is becoming evident is that folks at all income levels need more finanical security than ever. A large holder of WAMU notes was a California based pension program. “JPMorgan is getting a steal compared with what they were going to pay,” said Scott Adams, a pension and investment analyst at the American Federation of State, County and Municipal Employees in Oakland, California, which owns WaMu shares. “It’s very tragic.”

Where does that leave the person depending on that part of their retirement if a portion of it is represented by something with those types of question marks surrounding its outcome? One things for sure, the index that most reverse mortgages are based on, the 1 year Treasury yield or CMT is staying very low as investors flock to safer grounds and the 10 year Treasury yield is following suit, currently at floor levels. This means you get maximum equity access for your particular scenario and the interest on the money you use accrues at or near 4.5% AND ITS GUARANTEED by the Federal Government. They WANT to lend you the money.

What’s that mean for the senior who is concerned their retirement portfolio is going to be able to support their current lifestyle? The folks most able to weather this storm have enough of their future income safely and securely allocated in products that aren’t adversely affected by these events. But those on fixed incomes with one or two social security checks coming in each month and that pension tied to these shaky financial institutions are probably looking for someone to choke about right now. If you combine that with Tuesday’s Federal Housing Finance Agency report that July’s home values have dropped another 5.3% and a recent report by the says that nearly a third of older households will be less secure in retirement because of the housing bubble, you’ll quickly realize equity from the home may be quickly dwindling and a hedge against that is a reverse mortgage. “Right now, older Americans — those retired or about to retire — are going through hell, said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. “They’re seeing the value of their 401(k) assets decline and facing risks that assets will go down even more in the future.

First, the downside if you don’t look toward a reverse mortgage. Your home continues to fall in value and a recent shows that hits older Americans the hardest, so until the housing market hits botton or stabilizes, how long will that be until they see relief? Credit is almost non-existant right now. Where does a retired, fixed income senior go for a loan in this environment? Your pension could be jeopardized if its tied to some of these failing financial institutions or your portfolio could be taking a real hit right now and is now the time to be tapping into it to fill the gas tank? At some point its not enough each month. Was that your plan?

Now, the upside. Lock in the maximum amount of equity access with a reverse mortgage. The 10 year Treasury yield (CMT) is what helps to determine how much equity you have access to and its at the floor level of 5.5% right now (which includes 2.00 lenders margin), and it won’t go lower. Once the loan is in place, you are guaranteed access to the net principle limit upon closing your loan. If your home value decreases, your access will actually go up if you put the equity access into the credit line function of the reverse mortgage. If you had access to a reverse mortgage credit line of $150,000 in a $250,000 home in July and your home value dropped 5% to $237,500 in Sept, your $150,000 credit line growth was about $1125 or 2 months worth the current rate of 4.5% (or $6750 a year, can your CD do that? Tax free?). Don’t take the reverse mortgage and wait another couple months and your home is now worth less and your access to equity will be less as well and you’ll have missed out on 4.5% credit line growth. If this financial tidal wave subsides and you retained the reverse mortgage and your home value starts to increase, not only does your credit line growth continue but your remaining equity increases as well if you took out the reverse mortgage.

The brainacs on Wall Street don’t know which way this wave is rolling, do you risk it getting worse or do you lock in now?

I came across this by a young couple planning their own [tag]future retirement[/tag]. I found it interesting reading and was encouraged that “30-somethings” are starting to weigh the pros and cons of [tag]reverse mortgages[/tag] in their future plans:

If we use a reverse mortgage we can stay right where we are but at the risk of never being able to move. For example, let’s say we have taken out a reverse mortgage. All the money we are lent earns interest which is due back to the lender. But the interest is secured against the equity of the house. The good news is that if the amount we owe exceeds the value of the house the lender looses, a reverse mortgage only allows the lender to get the equity in the house and that’s it. But interest is due on all money lent out under a reverse mortgage and that interest is charged against the equity in the house. The end result is that a reverse mortgage can very quickly eat up all the equity in the house. So if we decide we want to move, for whatever reason, we can easily find ourselves with no equity left in the house and so no funds with which to move. In a very real sense we end up prisoners in our own home.