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Maturity Date versus Maturity Event in Reverse Mortgage Loan

Posted on June 27, 2014 by janjordan

For many who have had a conventional mortgage on their home, they are familiar with the “maturity date”. But with a reverse mortgage, there is no maturity date, only a “maturity event”. So, what’s the difference?

A maturity date indicates the date which the borrower will make the final payment on the loan, including principal and interest. These are used with conventional mortgages.

A maturity event represents a specific event that takes place in the borrower’s life that signifies the loan has come due. Because reverse mortgage borrowers do not make monthly mortgage payments. many seniors see this as an advantage.

Here are some examples of maturity events:

The property is no longer the borrower’s primary residence
The property is sold or transferred out of the borrowers name
The borrower (or last borrower on the loan) passes away
The borrower moves away from the home for more than 12 consecutive months (such as moving into an assisted living facility)
The borrower fall substantially behind on their property taxes, homeowners insurance, or HOA fees.

A reverse mortgage is available to seniors 62 and over, regardless of income or credit, and this FHA backed loans allow the borrowers to live mortgage payment free through their retirement years.

Jan Jordan is a Reverse Mortgage Specialist serving the Fort Collins, Loveland, Longmont, Greeley, and Front Range areas of Colorado as well as Cheyenne and Laramie, Wyoming. Click here to contact Jan and learn if reverse mortgage is right for you.

Why Reverse Mortgage for Purchase is Different

Posted on June 17, 2014June 17, 2014 by janjordan

The Reverse Mortgage for Purchase program is an age-based mortgage insured by the FHA for folks aged 62 and older. Unlike a traditional mortgage, monthly payments are deferred and the loan balance increases over time. Because the loan is backed by the FHA, neither the borrower(s) nor their heirs are personally liable for the debt. There are also no credit or income requirements.

So what does all that really mean?

It’s actually very simple…let’s say you use a reverse mortgage to purchase your dream home and decide to move in 10 years. When you sell your home you will receive 100% of the net proceeds after paying off the loan balance at the time of the sale. This is exactly how a traditional mortgage works.

The primary benefit of using a reverse mortgage for purchase comes into play during your living years in the fact that you are not paying a monthly payment to the mortgage company, thereby increasing your monthly cash flow. The secondary benefit is for your heirs. What if at the time of your passing your loan balance is greater than the value of your home — what happens?

In a traditional mortgage scenario your heirs would be forced to sell the home at a loss and cover the difference. The terms of a HECM program mandates that neither you nor your heirs are personally liable to cover the difference if your home is sold for a loss. Simply put, it’s not your problem and no one is coming after your estate for a settlement.

Click here for more specific details on how the Reverse Mortgage for Purchase program works.

(Information courtesy of Security 1 Lending).

Can Reverse Mortgage Help You Achieve Your Retirement Vision?

Posted on June 10, 2014June 17, 2014 by janjordan

In an era where “retirement” has taken on whole new meaning and commonly lasts for two or three decades, more and more retirees are ready to live the latter part of their life to the fullest. They see this as a time to enjoy life after years of working and raising a family. But in order to achieve these goals retirees need a plan, but first they need a vision.

For those ready to realize their retirement dreams, start by asking some simple questions:

If your retirement could be anything you hoped for, what would it include? Would you buy a vacation home? Move closer to family and grandkids? Take a yearly cruise? Visit Europe? Volunteer with your most passionate charity? By articulating your desires, you can better prioritize your wants and needs, and consider these costs when developing a retirement plan.

Determine other expenditures that may hinder these goals. Healthcare, home modifications and improvements, debt, and other scenarios like this are the most common. These expenses can arise later in retirement, so preparing for them upfront is often an important consideration.

What are the expectations between yourself, your spouse (if you have one), and your family? It’s amazing how often what is assumed and what is reality vary greatly. So many retirees feel they need to hold on to their assets because they want to pass a home or a vast inheritance down to their children, yet their children would much rather see their parents live their two or three decade retirement to the fullest. Make sure the lines of communication are open and no one is afraid to ask tough questions. The answers may be surprising.

No matter what your retirement vision is, reverse mortgage can help you achieve it. For seniors 62 and over, regardless of income or credit, a reverse mortgage can provide funds to achieve goals, frees up those strapped by limited incomes, and even help purchase a new home.

Reverse Mortgage and the ‘Standby’ Strategy

Posted on May 27, 2014May 27, 2014 by janjordan

In a recent Bloomberg article, the author laid out the case for using reverse mortgage as a responsible option for long-term financial planning. Assistant professor of financial planning at Texas Tech University, John Salter, and two of his colleagues put the scenario to the test.

Here is what they found:

Salter and two colleagues set out to determine if there was a place for reverse mortgages in responsible long-term financial plans. They started by looking at the prospect for a 62-year-old relying on a $500,000 investment portfolio to fund retirement. To reach a 90 percent probability that the money will last 30 years, the retiree could take out just under 3.25 percent of the portfolio’s value annually. (The portfolio is 60 percent stocks, 40 percent bonds.)

The outlook brightened after the planners used what they dub a ‘standby reverse mortgage’ strategy, based on a home valued at $250,000. In a falling market, the reverse was tapped, rather than the portfolio. The retiree repays the money when the market recovers. That supports a 5 percent withdrawal rate, with a 90 percent probability of the money lasting 30 years, Salter says.

Reverses can also be used to create monthly income. Gerald Wagner, CEO of Ibis Software, which does reverse mortgage analysis, crunched some scenarios to test that out. He started with a base assumption of $450,000 in home equity and an $800,000 investment portfolio with a 60/40 allocation. In general, adding the reverse to the mix supported a sustainable withdrawal rate between 5 percent and 6 percent.

Also in reverse mortgages’ favor is tax treatment. The money pulled out is tax-free income and doesn’t count when computing taxes on Social Security income. And a reverse line of credit can help delay taking Social Security until age 70, when retirees get the largest payout.

In order to qualify for a reverse mortgage, the individual must own their home, be at least 62 years old, and have some equity in the home. There are no income, credit, or medical requirements. In general, the older the borrower (or the youngest borrower in the case of couples) and the more valuable the home, the more money available. Other factors also come into play, such as: the appraised home value, interest rates, and the amount of equity in the home.

Reverse Mortgage in Retirement : Now or Last Resort?

Posted on May 15, 2014May 27, 2014 by janjordan

Research suggests that many baby boomer and beyond retirees will not be in a financial position to avoid using home equity as part of their retirement strategy, meaning they will be increasingly turning to reverse mortgage. Senior homeowners are more commonly seeking advice from their retirement planners on whether to consider a reverse mortgage now proactively, or later as a last resort. So, what is the right answer?

A recent study compared the efficacy of two simple strategies: (1) establish a reverse mortgage line of credit at age 62, under current lending and interest rate environments – but do not use the line of credit until the retirement investment portfolio is exhausted. Or option (2) wait until the investment portfolio is exhausted, if ever, and establish a reverse mortgage line of credit then, and subsequently begin to use the proceeds to support income needs until that line of credit is exhausted.

Conclusion: The results showed an estimated 30-year survival advantage for early establishment. This holds true under various future interest rate and home appreciation scenarios for real withdrawal rates between 4 percent and 6 percent. However, postponing the establishment of an HECM line of credit should be considered when the adviser and/or client has good reason to believe that home occupancy after loan origination is likely to be short. In a recent blog article, I discussed how a reverse mortgage line of credit increases each month, and the feature is more valuable the longer the borrower wants to stay in their home. Read it here.

Get the full report on this study from Journal of Financial Planning here.

Seniors 62 and over are eligible for a reverse mortgage regardless of income or credit. Use of home equity as part of a retirement planning strategy is becoming more and more realistic as baby boomers face an uncertain economy. Contact me for more information.

5 Things You Should Know About A Reverse Mortgage

Posted on May 1, 2014June 17, 2014 by janjordan

If you’re a senior over 62, reverse mortgage marketing will begin to creep into your life. It’s inevitable. Sometimes it’s big, flashy promises and other times it’s scary horror stories. To help you filter through the hype, here are 5 important things every senior should know about a reverse mortgage:

1. You do not make monthly mortgage payments. Yes, that’s right, homeowners with a reverse mortgage do not need to make monthly mortgage or interest payments as long as they live in the home and keep it as their primary residence. Borrowers will be required to continue paying property taxes, homeowners insurance, general upkeep, and standard utilities (such as water, gas, and electricity).

2. There are no credit or income requirements. It’s true, there are no credit and income requirements to obtain a reverse mortgage. There are, however, borrower and property eligibility requirements. For example, the borrower must be age 62 or older. The home must be their primary residence and the property type will need to meet certain HUD guidelines, meaning it must be a:

Single family home or 2-4 unit home with one unit occupied by the borrower
HUD-approved condominium
Manufactured home that meets FHA requirements

3. You can use a reverse mortgage to purchase a home – even if you’ve never been a homeowner before. There are a few options to use a reverse mortgage to purchase a home. When purchasing a home, the borrower will be required to make a down payment, but will enjoy living mortgage payment free in this new home. Click here for much more information about purchasing a home with a reverse mortgage.

4. Married couples can both be on a reverse mortgage. If both borrowers are 62 and over, both can be on the reverse mortgage. If a spouse passes or moves to an assisted care facility, the remaining borrower can stay in the home. A reverse mortgage lender should be able to answer any questions regarding married couples and ensure both spouses feel confident in their decision.

5. You retain to the title to your home. Yes, you are still the “owner” and you will always retain the title to your home.

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HECM LOC Credit Line Grows Every Month

Posted on April 21, 2014July 31, 2016 by janjordan

Unlike the traditional HELOC’s fixed borrowing limit, the HECM credit line increases at the current compounding rate. This feature is particularly valuable the longer the client stays in their home.

A scenario: A 62 year-old couple has a home worth $200,000 with no mortgage. They get a HECM LOC and keep it in standby, not taking any money out of it yet – perhaps they are keeping it in reserve to help them if their health fails. Say their initial HECM borrowing limit is $100,000 (they could get more but opt not to), and their compounding rate happens to stay at 7.2% for the next 30 years. Using the Rule of 72 for doubling your money their credit line doubles every 10 years, as shown in the table below. Their $200,000 house appreciates 3% a year, so it is worth $360,000 on their 82th birthday. At their 92nd birthday, their home is worth $485,000 – a fraction of what they could withdraw from their $800,000 HECM.

Reverse Mortgage for Purchase Down Payment Information

Posted on April 1, 2014August 21, 2017 by janjordan

Reverse mortgage for purchase is a popular option for seniors wishing to purchase a home and live mortgage payment free, just as they would with a traditional reverse mortgage. This program has been a wonderful tool used by homeowners in Northern Colorado, including Longmont, Fort Collins, Loveland and Greeley.

Here are few basics to the reverse mortgage for purchase program:

The purchaser must be age 62 or older (each borrower on title must meet this criteria, although others residing in home do not)
The home being purchased must be the new primary residence
Credit and income are irrelevant
The purchaser must have the “required investment” (down payment) from a HUD allowable source. The funds cannot be borrowed. The required investment can come from the sale of a currently owned asset or money you have had for at least 90 days.

For more detailed information about reverse mortgage for purchase, click here.

The required investment (or down payment) changes based on the age of the homeowner and the value of the home they are purchasing. The following table is an illustrative guide to required down payments.

Taxes and your Reverse Mortgage

Posted on March 20, 2014June 17, 2014 by janjordan

Spring has sprung in Northern Colorado again! That’s the good news. The bad news is this also means it’s tax time. It’s common during this time of year for me to receive a few questions regarding taxes and reverse mortgage – from both those considering a reverse mortgage, and those who already have a reverse mortgage.

Here are the two most common:

Are the funds from my reverse mortgage considered taxable income?

No. Because the funds received from a reverse mortgage are technically an advance on a loan, any payments or lump sums received are not taxable income, meaning they do not need to be reported on a tax return as such. They also typically do not affect Social Security or Medicare payments.

Is the interest from my loan deductible?

No. Because reverse mortgage holders do not make monthly mortgage payments and typically the interest is not paid until the loan is paid in full, the interest from a reverse mortgage loan is not deductible on a tax return. This is also the case with a reverse mortgage for purchase loan.

FHA insured reverse mortgages are available to homeowners 62 and older with no credit or income requirements. These loans allow the borrower to live mortgage payment free and receive their loan payment in one lump sum or in monthly installments. All borrowers are required to participate in third party counseling to ensure all their questions are adequately answered before making a decision. Reverse mortgages are also available to purchase a new residence.

Jan Jordan is a Reverse Mortgage Specialist serving the Fort Collins, Loveland, Greeley, Longmont, Boulder and other Front Range areas of Colorado. Click here to contact Jan and learn if reverse mortgage is right for you.

3 Things to Do with a Reverse Mortgage in Colorado

Posted on March 10, 2014June 17, 2014 by janjordan

One of the best parts of a reverse mortgage is the borrower(s) can do anything they’d like with the funds – while also living mortgage payment free. In Colorado, seniors are more active than ever, whether it be traveling, home improvements, or visiting with family and grandchildren often. As several Colorado cities always make the list of the best cities to retire (including Fort Collins & Loveland in this survey and Firestone, Parker & Louisville in this one) there couldn’t be a better time or place to enjoy life.

Here are 3 fulfilling options seniors are using their reverse mortgage funds for:

Take that trip they always dreamed of – After years of working hard, saving for retirement, and raising a family, some reverse mortgage borrowers are using a portion of their funds to take the bucket list vacation they’ve always dreamed of. This option becomes less probable as they age and makes for a fantastic celebration by the more active seniors.

Visit with loved ones – Whether it’s a sister who hasn’t visited in 10 years, or children and grandchildren, or long lost friends, using reverse mortgage funds to visit with loved ones is a very common today. Travel can be expensive and it holds us back far too often from the visits that mean the most to us, especially as we age.

Make home repairs or upgrades – After a life of caring for others, senior homeowners often find parts of their home may have been neglected. When using a reverse mortgage to tap into home equity without a subsequent loan payment borrowers often make those repairs or upgrades they have been longing for. Whether it’s a sunroom addition or a kitchen remodel, or just dutiful repairs, this is never a bad option.

Reverse mortgages are available to homeowners 62 and over with no income and credit requirements. This FHA insured loan offers funds through a lump sum or monthly installments and eliminates monthly mortgage payments. With many protections in place to ensure borrowers are adequately educated before using this option, such as required third-party counseling, reverse mortgages are gaining in popularity among retirees from all walks of life. And a reverse mortgage for purchase option is available for those looking to purchase a new residence.