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 www.reverse-mortgage-information.org, please email us with you comments or questions.

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?

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.

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.

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 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.)