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Author: Mutual of Omaha Mortgage Staff

7 Ways To Recession-proof Your Retirement Savings

If you’re concerned about the financial aspect of retirement, you’re not alone. A March 2023 survey into Americans’ financial concerns by Quinnipiac University found that 68% of people are concerned they don’t have the funds to live comfortably after stopping work. Of all the financial worries in the survey, retirement costs were second only to food prices. 

Recessions and periods of high inflation have a disproportionate impact on retirees. Most retirement accounts are invested in the stock market. Stock and fund prices fall during economic downturns, so the account loses value when you need it the most. 

Luckily, you can take steps to prepare for the worst-case scenarios so that your savings remain intact regardless of the country’s overall economic outlook.

Diversify Your Assets 

Diversification is an essential step for all well-balanced portfolios. It’s especially vital for retirement accounts because of the impact a loss of asset value can have on your quality of life. The Financial Industry Regulatory Authority (FINRA) explains that diversification involves putting your investment capital in uncorrelated assets and different asset classes. 

Uncorrelated assets don’t react to economic events in the same way. Some stocks, exchange-traded or mutual funds, bonds, or commodities may rise in value in an economic downturn or inflation. For example, precious metals and government-backed inflation-protected bonds (IPBs) are considered safe havens during uncertain economic times. Their value often increases or remains stable during market downturns. 

Diversification does take capital away from high-performance assets, but it brings more stability. Because uncorrelated assets increase in value during periods of inflation or bear markets, they cancel out losses from securities negatively impacted by a recession. 

Look For Ways To Reduce Expenses 

You can take steps to ensure your retirement income goes further by reducing unnecessary spending. Unnecessary expenses are costs for products or services you rarely use or that have cheaper alternatives with the same value. 

For example, many people have memberships with streaming websites, magazines, or music apps that they rarely use. If you’re in this category, you can cancel these recurring subscriptions if you don’t use them often or select one at a time to lower your entertainment costs. 

Cellular and internet bills are another target for spending reduction. High-speed internet and mobile data can be expensive. If you don’t use the data or don’t need fast internet speed, you’re overpaying for the service. By tracking mobile data usage on your phone, you can see how much you actually need and adjust your plan accordingly. You could also look at how fast your internet connection should be. 

Convert to a Roth Account 

A Roth IRA is a retirement account without upfront tax benefits. The money you deposit in a traditional IRA is tax-deductible, but you pay regular income tax on withdrawals when you retire. Roth IRA contributions aren’t tax-deductible, but you don’t pay income tax on the principle or any investment profits in the account upon withdrawal. In other words, investment returns from a Roth account are tax-free.

A Roth IRA won’t offer any added protection against inflation on its own. You’ll need to properly diversify and balance your portfolio just like any other type of retirement account. However, it will potentially give you more income in retirement because the withdrawals are not subject to income tax. 

You can convert a traditional IRA into a Roth. You’ll have to pay taxes on the converted amount, but any additional investment earnings after the conversion will be tax-free. Despite the short-term tax burden, you won’t lose a portion of your withdrawals to income tax in the long run.  

Hold Off on Taking Social Security 

You can receive Social Security when you reach 62 if you or a current or former spouse have paid Social Security tax for at least 10 years. However, you’re not required to take these payments until you reach age 70. One retirement strategy is to rely on your retirement savings upfront and defer Social Security benefits as long as possible. 

According to the Journal of Accountancy, you can increase your Social Security payments by up to 8% for each year you delay. In other words, by waiting a decade to take your payments, you earn 8% on the amount due. 

When planning your Social Security benefits, you should only deal directly with the Social Security Administration. Many scams related to Social Security involve tricking retirees into providing sensitive information that could give criminals access to retirement funds. 

Invest in a Deferred Annuity 

Technically, a deferred annuity is an insurance product. You pay a lump sum or make regular deposits. After at least a year, you receive regularly scheduled payments that include the principle and a modest return. 

An annuity can supplement income from Social Security or retirement accounts. Since you can arrange an annuity to provide predictable payments and specific times, it can also help with financial planning. 

Look For Other Income Streams 

While you may be finished with your primary career, it’s possible to seek other types of income. 

For example, you might consider renting out unused space in your home to a regular tenant or on a vacation rental site like Airbnb. While this option requires managing bookings and providing help to renters when necessary, it also allows you to earn from an asset that you already own without having to take a salaried or hourly wage job. 

You could also consider a part-time position to supplement your income. You could choose a consulting position related to your previous career or something you always wanted to do but were unable to try because of your primary career. 

Part-time jobs provide supplementary income that helps you stretch your retirement account withdrawal further. A post-retirement job can supplement Social Security benefits. You’ll have to pay Social Security taxes on your income, but you’ll still get benefits. However, if you earn more than the minimum amount ($21,240, as of 2023), the SSA will deduct $1 from your benefits for every $3 earned. 

Consider a Reverse Mortgage 

One final option is to consider a reverse mortgage. This type of mortgage allows homeowners to secure a loan using their property as collateral. Unlike a traditional mortgage, the homeowner receives payments rather than paying them. The homeowner retains the deed and lives in the home, and they still pay property taxes and insurance. 

The lender recoups their investment by selling the property after the homeowner stops living there or receiving repayment when the homeowner sells it. 

Reverse mortgages have specific qualifications:

  • This HUD program is limited to homeowners age 62 or older. Your home must be your primary residence and be kept in good repair.
  • The amount of money available to you is based on the value of your home and your age.
  • Although your mortgage and other debts are paid off, you still are required to pay your real estate taxes, homeowner’s insurance, and other conventional payments like utilities for as long as you own your home.
  • You must receive consumer information from a HUD-approved counseling source prior to participating in this loan program.

Like other mortgages, you need to complete specific legal steps. These include an application, approval, appraisal, underwriting, and closing. All reverse mortgages require a counseling session during which a third-party advisor helps you decide if this is the correct option for your retirement plans. 

You should look at the different reverse mortgage options and learn more about the process before applying. 

With careful planning and additional income from a reverse mortgage, part-time job, or investments, you can fully enjoy retirement regardless of the current economic environment. 

If you want to learn more, download this free guide or find a loan officer near you.

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

How To Protect Yourself From Social Security Scams

Social Security fraud — where scam artists often pose as Social Security Administration (SSA) representatives — represents a growing threat. Scammers often ask older adults to confirm their SSA account details, before finding ways to access and steal hard-earned money.

Financial volatility can affect older adults in particularly negative ways. Inflation can reduce savings, further stressing your budget as you prepare to retire. The last thing you need is financial difficulty from a Social Security scammer.

What Are the Common Types of Social Security Scams?

Social Security scammers are devious. They will use several different methods to separate older adults from their money. Sometimes, they will directly impersonate a Social Security official. In other cases, scammers might attempt to steal from older adults without ever speaking directly with them. Phishing emails, text messages, and even paper mail are sometimes effective to trick unsuspecting older adults.

Fraudulent Phone Calls

Many scam phone calls don’t sound fraudulent at all. Sophisticated Social Security scammers can make calls sound sincere, even urgent. They will pretend to be Social Security representatives, often calling to alert you of a pretend issue with your account.

On the phone, Social Security scammers will say things that real Social Security employees never would. They might threaten to end your Social Security benefits unless you take immediate action. They might also request payment through gift cards or PayPal. If you ever suspect that a call might be fraudulent, hang up. Dial the Social Security Administration directly to verify the call.

Phishing Emails

Some Social Security scammers will use less direct methods to attempt scams. One popular method, phishing emails, are fake emails that often appear legitimate. Fraudulent actors create email addresses and official wording to make the email look like it was sent by the SSA.

Most phishing emails contain an attractive link. This link often sends you to a website, where you’re encouraged to submit personal information. Depending on the email, you might be asked to submit bank details, passwords, or Social Security numbers.

Paper Mail

Paper mail Social Security scams are particularly dangerous for seniors. Scammers will often mail fake documents, meant to look like real government letters, to older adults’ homes. Letters might make demands for money or personal information.

Paper mail Social Security scams are similar in many ways to other forms of SSA fraud. They are typically unsolicited and request payment through wire transfer or specific gift cards. Many letters are poorly made, and contain spelling or grammatical mistakes throughout.

How To Protect Yourself From Social Security Fraud

No matter your age, Social Security scams are still a threat. It’s important to be aware of popular Social Security tricks and how to defend yourself. Staying up-to-date on the latest forms of fraud can help minimize the chances of scammer success.

Here are a few ways to protect yourself against Social Security fraud:

  • Ignore unsolicited messages: Do not answer or maintain calls from people claiming to represent a government agency or the Social Security Administration.
  • Verify caller identities: Before continuing any conversation, make sure that the person you are speaking with is a verified representative of an agency. If you suspect fraud, you can hang up and call the agency directly to verify the caller.
  • Keep personal information private: Do not share any private information through a phone call, email, text message, or paper mail. This information includes usernames, passwords, security questions, bank information, and Social Security details.
  • Avoid unorthodox payment methods: Never transfer funds to a caller or email sender through a suspect payment method. Avoid purchasing gift cards, wiring checks, or sending money through social media if you have not verified their identity.
  • Pursue frequent, ongoing education: Learn more about recent Social Security scams and teach your family members how to recognize them.

Given the frequency of online Social Security scams, it’s also important to update your computer. Install a firewall and antivirus software on any device — phone, tablet, or desktop — that can access your Social Security account.

How To Report Social Security Scammers

When you suspect a Social Security scam, don’t wait. Reporting Social Security fraud helps protect yourself and others from similar losses.

Contact the Office of the Inspector General with details of the Social Security scam. Include details like the caller’s name, phone number or email address, their script, and any other useful information. File a report with the Federal Trade Commission if someone has used your Social Security details without your permission.

Other Scams That Target Retirees

Retirement is typically a period of financial security, where people reduce their workload and enjoy life. This makes retirees ideal targets for scammers who want to steal large amounts of money.

Scams targeting retirement-age individuals are on the rise. They can take many forms — including health insurance fraud and reverse mortgage fraud — and can create serious financial loss.

Medicare/Health Insurance Fraud

Scammers sometimes pose as Medicare employees to cheat retirees out of their savings. They will call an older adult without warning, often claiming that there is a problem with their health insurance coverage. To fix that problem, they say they need to confirm a few pieces of personal information.

If the older adult provides that personal information, a scammer can use it to access their finances and withdraw funds.

In other cases, scammers will call retirees pretending to sell discounted Medicare services. People who volunteer their bank information over the phone or email can quickly become victims of identity theft.

Internet Scams

There’s no shortage of internet scams that target retirees. Some use viruses that steal information from computers or smartphones. These viruses can enter a computer through a variety of methods, from email attachments to physical flash drives.

Others use fake pop-up messages that trick retirees into believing that their device has a problem. The pop-ups typically contain a virus, released after someone clicks the message. If the pop-up itself doesn’t contain a virus, it can still lock the device and prompt a call to a specific phone number. On the other end of that phone number is a fraudulent actor who tricks the caller into providing personal information.

Investment Scams

Older adults with access to retirement savings often want to invest — and scammers know it. They will operate a variety of investment schemes, meant to sound legitimate until retirees lose their money.

Ponzi schemes are perhaps the most common form of investment scam. Scammers ask retirees for an investment, promising high returns in a short time span. Any invested money goes to earlier “investors” to create the appearance of a successful company. Investors lose money when the scheme fails.

Many scammers also pretend to be certified investors. They will call and offer to invest a retiree’s money in promising stocks. However, they first ask for a deposit. Once the deposit is paid, the criminals vanish with the money.

Reverse Mortgage Scams

Reverse mortgage schemes are also a growing threat, particularly for older adults looking to access home equity. Dishonest mortgage brokers will commonly offer a reverse mortgage opportunity to older adults for an extremely limited time. Unlike an ethical reverse mortgage — with which buyers can supplement income through home equity — reverse mortgage scams force seniors into a hasty decision. Once the deal is done, they are locked into high-interest payments.

Education is the best defense against reverse mortgage schemes. Retirees should study reverse mortgages so they know what to expect from their interest rate, legal agreements, and total equity. Older adults should also consider all available reverse mortgage options before deciding on a provider.

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

When Is the Right Time to ‘Right-Size’ Your Home?

Countless Americans are tightening their wallets due to increased monthly costs. Some people feel the strain of housing costs (including home insurance premiums and utility bills) while others have noticed their grocery and gas bills are going up. Inflation affects everyone but some people are impacted more than others. 

If you are eyeing retirement, you might be worried about how current economic trends could impact you after you leave the workforce. You aren’t alone. More Americans are considering adjusting their home sizes to meet their current needs. While this is often called “downsizing,” the reality is that these families are “right-sizing,” or moving into a house that accommodates their future plans. 

Is right-sizing for you? There are multiple benefits of moving throughout life. Learn more about this concept and how it can help you retire comfortably. 

What Are The Benefits of Right-Sizing?  

Regardless of your age, there are several benefits of right-sizing. Your needs and your finances change throughout your life and it only makes sense that you would adjust your housing to match these trends. Here are a few perks of right-sizing. 

Easier Upkeep  

Moving to a smaller property can help you save time, money, and energy on general upkeep. You will spend less time dusting, mopping, and cleaning because there are fewer rooms that need your attention. You can also spend less time landscaping if you move to a smaller plot. 

Right-sizing can benefit both older and younger homeowners. A younger homeowner might not have the skills or savings to make necessary repairs. Older homeowners might not have the ability or desire to tackle home projects (like climbing onto the roof to clean your gutters). Now might be a good time to look into a bungalow, townhome, or condo that is easier to maintain.  

Reduced Expenses 

Moving to a house that matches your budget can immediately lower your monthly costs. You will notice lower property taxes, lower monthly insurance rates, and lower utility bills. If you currently live in a neighborhood with a homeowner’s association (HOA), you can find a house with cheaper monthly fees — or no HOA fees at all. 

Some people save hundreds of dollars each month just by right-sizing their homes. This allows older homeowners to enjoy a low-stress retirement while helping younger homeowners grow their savings to prepare for life milestones like marriage, travel, children, and their own future retirement. 

More Flexibility 

Right-sizing can also give you the freedom to choose where you live. Consider moving to a coastal town where you can retire in peace. Find a cabin in the woods where you can commune with nature. It is easier to find properties within your budget when you don’t need a large home in your desired area. 

Cons of Right-Sizing 

While there are several benefits of right-sizing your home, there are a few drawbacks to consider. It’s up to you and your family to review your options and decide whether the pros outweigh the cons. 

  • You will have a smaller living space. Make sure you have enough room for your family to live comfortably. 
  • You might lose your largest real estate asset. There is always a risk that your home’s value could increase after you sell it, causing you to miss out on potential profits.
  • Your family will have to deal with the stress of moving. Packing and selling a house is exhausting and expensive – even if you are just moving down the street.     
  • This could mean giving up a family home. If you raised your kids in that house, selling means leaving a key part of your life behind. However, you will always have the memories with you. 

You don’t need to decide whether right-sizing is the best choice for your family immediately. Instead, give everyone involved in the decision time to process what a move means and how it can benefit the family. Within a few months, you can decide.  

When To Consider Right-Sizing 

Regardless of whether you are moving down the road or across the country, there are a few factors you need to consider when right-sizing. People of all ages can evaluate their current situations when making their future house plans. Use the following criteria to objectively determine whether right-sizing is the best choice for you or whether you can afford to stay in your current home.

You Spend Too Much on Housing 

First, look at your finances and calculate what percentage of your monthly income goes to housing (your mortgage or rent payment). The Department of Housing and Urban Development recommends spending no more than 30% of your monthly income on housing costs. If you spend more than 50% of your income on housing, it is considered a severe burden.

Right-sizing could bring your monthly costs below the 30% mark, freeing up your budget for additional savings or giving you spending money for hobbies, travel, and other treats.   

You’re Eating Into Your Savings 

Another indicator that you are living in a house above your means is if you are using your savings to cover basic costs. Most financial experts recommend keeping at least three to six months’ worth of expenses in your emergency fund. Do you find yourself pulling from your savings to cover your electricity bill? Are you spending more than you make each month?

This affects both new homeowners and people who are preparing for retirement. Living in a city like Seattle might seem glamorous, but make sure you can afford it.

Maintenance Is Becoming too Difficult  

If you feel overwhelmed with your home maintenance task list, it might be time to right-size. This affects homeowners from all walks of life. If you are building your career, you might not have the time and energy to take on weekend projects. If you are getting older, you might not feel safe shoveling the driveway or climbing on the roof. 

Even growing families might decide to right-size. A new baby can take away your time and budget to work on home projects. 

Your Home No Longer Suits Your Needs  

Finally, your home might have been perfect for you when you bought it, but what about now? Do you still need extra bedrooms if your kids no longer live with you or a home office if you no longer work? You might benefit from moving to a house that has fewer bedrooms and less square footage to match your current lifestyle. 

Also, evaluate whether you want a house that is easier to navigate. A home without stairs and without a steep driveway might be safer in the long run.

Alternatives to Right-Sizing  

Many people have strong connections to their homes and love where they live. If you know you need to right-size from a financial perspective but don’t want to move, consider other options. Here are a few ways to lower your expenses while staying in your home.

Take Out a Home Equity Line of Credit   

A home equity line of credit (HELOC) gives you cash based on the value of your home. It is a second mortgage that is often used to cover major expenses (like a significant home repair). You might qualify for a HELOC if you own your home outright or if you own a significant portion of your home. Talk to a financial advisor to learn more. 

Renting Out Space in Your Home 

If you have extra rooms because your kids moved out, consider looking for people to rent the space. You can either list the room on a booking site like Airbnb or look for long-term renters who sign a lease. 

While renters can provide a source of secondary income to cover your housing expenses, you also have to live with them. You might not like sharing communal areas with others or like your tenant. Plus, there’s always a risk that a tenant stops paying and you have to evict them. 

Refinancing  

Another option for lowering your expenses is refinancing your mortgage. If you take this route, the lender will look at the current value of the house and what you owe on it. They might be able to offer a lower interest rate and lower monthly payment on the property through refinancing. 

There may be some drawbacks to choosing this option. Refinancing could change your home insurance costs, which could actually increase your monthly expenses in some areas. 

Reverse Mortgage

With a traditional mortgage, you make payments to the lender. With a reverse mortgage, the lender makes payments to you. These payments could be a lump sum, a line of credit, or standard monthly deposits.

The main criteria to qualify for a reverse mortgage is age: you need to be 62 years or older. There are other requirements related to residency and equity for your home. However, this option is growing in popularity for Americans who are able to use it. Older homeowners don’t have to worry about moving and can receive regular payments no matter how volatile the market gets. This stability is highly valued by many retirees. 

This is just one way to adjust your mortgage to prepare for retirement.

Learn more about mortgage options to choose the best one for your needs, or find a reverse mortgage loan officer near you!

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

Reverse Mortgage vs. Selling Your Home: How to Choose?

While retirement is a very optimistic time of life, it also requires that you make several major decisions, and one of the biggest decisions is where you are going to live.  

The options include staying in your current home, downsizing to a smaller home, relocating to another city to be near family, moving to a different climate, moving in with children or other family members, and more. 

During retirement, many people look for ways to offset costs and make the most of their hard-earned savings as cash flow can be challenging at this time. 

For those who have lived in their homes for a considerable amount of time, there is likely a substantial amount of equity, which can be accessed in several ways. Two common options for retirees are a reverse mortgage or selling the home. 

We will examine both options carefully and weigh the pros and cons to help you determine which one makes the most sense for your situation.  

Understanding a Reverse Mortgage

The Home Equity Conversion Mortgage (HECM) is the most common type of reverse mortgage. It is insured by the Federal Housing Administration (FHA) and regulated by the U.S. Department of Housing and Urban Development (HUD).  

A HECM reverse mortgage is a unique financial product specifically designed for older homeowners aged 62 and over. It’s a loan just like a traditional mortgage loan, but how a reverse mortgage works is very different. 

With a reverse mortgage loan, homeowners borrow against their home’s equity, but they are not required to make monthly mortgage payments on the money they receive.  

The lack of monthly mortgage payments that typically come with a regular mortgage is one of the ways a reverse mortgage helps to free up cash. 

The money from a reverse mortgage will first pay off the existing mortgage, if there still is one. For the remaining cash, homeowners can receive the funds in the form of a lump sum, monthly payments, a line of credit, or combine those options.  

With HECM loans, there are no restrictions on how the money may be used, and how you decide to have your funds disbursed will be based on your needs. 

For example, receiving your funds as a lump sum may be the best option if you have major home renovations that you need done. Monthly payments may be the best option for you, if your primary need is to supplement your monthly income. If what you’re looking for is to increase your emergency savings, then a line of credit may be ideal. 

The amount of money you receive will be based on three main factors: your age, your home’s appraised value, and the interest rates. The current FHA lending limit is $1,209,750.  

However, for homes that are worth more than that, most major reverse mortgage lenders offer proprietary reverse mortgages also known as jumbo loans. At Mutual of Omaha Mortgage, we offer the SecurEquity reverse mortgage, which allows homeowners to borrow up to $4 million. 

The loan is repaid or becomes due when a maturity event takes place such as when the homeowner sells the home, no longer lives in the home full-time, or passes away. A reverse mortgage is a non-recourse loan, which means that you will never owe more than the home’s value. 

Eligibility Requirements for Reverse Mortgage 

Just like any other financial product, there are eligibility requirements reverse mortgage borrowers need to meet. These include the following:  

  • You must be at least 62 years of age 
  • The property in question must be your primary residence 
  • You must have sufficient equity in your home  

If you are unsure about whether you qualify, the best way to make sure is to talk to one of our reverse mortgage specialists. 

What are the Benefits of a Reverse Mortgage? 

One of the most significant advantages of a reverse mortgage is that it allows homeowners to maintain possession of their home while still accessing their equity. This is ideal for those who want to retire in place.  

In addition, it eliminates monthly mortgage payments while potentially giving homeowners access to additional cash.  

Several retirees find themselves living on a fixed income, which can make it difficult to cover monthly expenses, pay off debts, pay for medical bills, and any other unexpected expenses.  

A reverse mortgage can make a significant difference in helping homeowners to offset those costs.  

A reverse mortgage can also be used by retirees to supplement their income if they don’t want to take out their retirement savings when the market is in a downturn.  

Selling Your Home: Is it a Good Idea? 

An alternative way to receive your home’s equity is to put it up for sale and keep the profits. 

After selling, you can opt to rent or move in with family members (if that is an option for you) or relocate to a community where there are homes in communities where the upkeep is included. 

If you are looking for a way to retire without the burden of homeownership, this might be an ideal solution. If you decide to obtain a reverse mortgage, you will still need to pay property taxes, homeowners insurance premiums, keep up with home maintenance, and pay any HOA fees, if there are any. 

Selling your home could be a great idea if you are seeking to significantly reduce your living space or move to an area where housing costs are much lower than what you pay now. If the value of your home is high enough, then you may be able to generate enough funds from the sale that would enable you to purchase a new residence with cash, free of any mortgage obligations. 

However, it is important to remember that even if you sell your home, you do have to live somewhere, so you will want to weigh the costs.  

Reverse Mortgage vs. Selling Your Home: Weighing Your Options 

The final choice between a reverse mortgage or selling your home will come down to evaluating your personal situation and needs. 

If you’re planning to remain in your current residence and need extra funds for income support, money for major home repairs or renovations, or an emergency fund, then a reverse mortgage could be the optimal solution. 

If you’re ready to move on from owning a home and gain some return on your investment, then selling your property could be the best option. 

If you would like to sell your current home and purchase a new home, and you like the idea of retiring without monthly mortgage payments, another option to consider is a reverse mortgage for purchase.  

Whenever making a decision that has financial implications, such as selling your home or obtaining a reverse mortgage, it’s important to speak with a financial advisor and the family members who may be affected by your choice. 

What to Do Next 

If you decide that you want to sell your home, your next step will be to reach out to a real estate agent to help you with your home sale. 

If you decide that you want to pursue a reverse mortgage, your next step is to talk to a reverse mortgage lender.  

Go here to download a free reverse mortgage guide or go here to find a reverse mortgage specialist from Mutual of Omaha Mortgage.  

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

What You Need to Know About Reverse Mortgage Interest Rates and Fees

A Home Equity Conversion Mortgage (HECM), more commonly referred to as a reverse mortgage, provides a way for homeowners aged 62 and over to access the equity they have built up in their home without having to take on any additional monthly payments.  

This type of loan differentiates itself from a traditional home equity loan or home equity line of credit (HELOC) by offering an alternative for older homeowners who want to access their equity without increasing their financial burden.  

In this article, we’ll go over the costs and fees associated with taking out a reverse mortgage so that homeowners can make an informed decision. 

Here is a brief overview of what you can expect to learn:  

  • How reverse mortgage interest rates work 
  • Fees associated with taking out a reverse mortgage  
  • Other costs you may incur while the reverse mortgage loan is active 

By the end of this article, you should have an understanding of how much it will cost you to take out a reverse mortgage, as well as the costs and fees you can expect to pay throughout the life of the loan.  

A Reverse Mortgage Explained

A reverse mortgage is a type of loan that is backed by the federal government and allows homeowners who are 62 years of age or older to borrow against the equity in their home.  

A reverse mortgage can only be used on a property that is the primary residence of the homeowners and has significant equity. 

The funds from a reverse mortgage loan will pay off the traditional mortgage if there still is one. Any remaining funds are typically provided in either a lump sum payment, in monthly payments, or as a line of credit. 

The amount of money that you are able to receive is based on the appraised value of the home, the age of the youngest reverse mortgage borrower, and the current interest rate. 

The loan funds can be used for any purpose and do not have to be repaid until the homeowner passes away, sells the home, or moves out. 

To learn more about how a reverse mortgage loan works, grab a free info kit here.

An Overview of the Upfront Reverse Mortgage Costs and Fees 

If you’re considering a reverse mortgage, it’s important to understand the upfront costs and fees associated with it.  

If you are unable to pay for these fees out of pocket, these costs can typically be rolled into the loan.  

Here are some of the common costs and fees you can expect to pay:  

  • HUD-Approved Counseling: Before a homeowner can officially submit an application for a HECM reverse mortgage, they must first attend a counseling session with an approved third-party counselor from the U.S. Department of Housing and Urban Development (HUD). Counseling sessions typically range from $125 to $200, however the Consumer Financial Protection Bureau (CFPB) requires counselors to waive fees if the homeowner is unable to afford it and must explain all charges before counseling. 
  • Origination Fees: Lenders charge homeowners an Origination Fee in order to initiate and process their reverse mortgage loan. This fee is determined using a formula provided by the Federal Housing Administration (FHA), which allows for up to 2% of the first $200,000 of the home’s market value plus 1% of any remaining amount if the home is worth more than $200,000. Additionally, lenders are allowed to charge up to $2,500 for homes valued at $125,000 or less. The Origination Fee cannot exceed a total of $6,000.  
  • Closing Costs: Closing Costs for a reverse mortgage typically include title fees, appraisal fees, credit checks, recording fees, document preparation costs, and courier charges. The specific fees will vary depending on state and local regulations as well as the lender that you choose to work with. Be sure to talk with your lender beforehand about what fees may be included in the loan agreement. 
  • First Mortgage Insurance Premium: The first mortgage insurance premium is payable when your reverse mortgage loan is first originated. This annual fee protects you from potential losses and guarantees that you will receive the expected loan payouts. The premium also includes additional safeguards to ensure a secure process. 

How Reverse Mortgage Interest Rates Work 

Reverse mortgage rates come as both fixed and variable interest rates, also known as an adjustable rate, depending on how the money is disbursed to you. If your loan is taken out as a lump sum, you have the option of a fixed interest rate that will stay steady throughout the life of the loan.  

However, if any of your money is received as a line of credit or monthly payments, you are required to borrow at a variable rate.  

Variable rates tend to be lower interest rates than fixed rates at the start of the loan, and they come with a life cap that limits how much the rate can increase over time. The cap is usually either 5% or 10%, depending on whether you get a yearly variable (5% cap) or monthly variable (10% cap). Monthly variable rates are the most common and typically come with a lower starting rate. 

It’s important to note that interest is only charged on the funds that have been received.  

Interest on a reverse mortgage is calculated daily and added to the balance of the loan each month, but unlike other loans, interest payments are deferred until the end of the loan.  

The loan term for a reverse mortgage ends when: 

  • The home is sold  
  • It is no longer the primary residence of the homeowners  
  • The borrowers pass away  

Ongoing Costs of a Reverse Mortgage 

In addition to the fees associated with securing a reverse mortgage, there are other ongoing costs that homeowners will need to continue to pay throughout the life of the loan: 

  • Servicing Fees. Reverse mortgage service fees are set in accordance with FHA guidelines, which state that lenders may only charge a maximum of $35 per month. This fee is used to cover the costs incurred by the lender for disbursing payments, sending out monthly statements, and ensuring that the borrower properly maintains their home, pays property taxes, and maintains insurance. However, some lenders may waive this fee altogether.  
  • Mortgage Insurance Premiums (MIP). MIPs are charged annually on HECM loans. The MIP is charged at a rate of .5%, so if you are charged a 4% interest rate, the total amount payable, including the MIP, will be 4.5%. 
  • Homeowners Insurance. All borrowers are responsible for ensuring that they have adequate homeowner’s insurance. Depending on the location of your home, it may also be necessary to purchase additional flood insurance. 
  • Taxes. Homeowners who obtain a reverse mortgage must ensure that their property taxes are up to date before taking out the loan, and they must continue to keep them current for the duration of the loan. 
  • Maintenance Costs. When taking out a reverse mortgage, homeowners are still responsible for any repairs and other costs needed to keep the home in good condition.  
  • Any Required Fees. Homeowners who are part of an association must factor in the cost of Homeowner’s Association (HOA) fees when considering a reverse mortgage. It is important to remember that these fees must continue to be paid even after taking out a reverse mortgage. 

Conclusion: Understanding the Costs and Fees of a Reverse Mortgage 

A reverse mortgage loan can help you access the equity in your home, but it’s important to understand all the fees and costs associated with it.  

One way to keep your costs as low as possible is to consider receiving your funds as a line of credit so that you only have to pay interest on the funds that you use. If you are interested in a fixed-rate reverse mortgage, you will want to opt to receive your loan proceeds as a lump sum payment.  

We always recommend that you discuss your decision with your financial advisor and any family members who may be affected by it. 

Please reach out to one of our reverse mortgage specialists if you have any questions or would like more information. We’re here to help! 

Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

Record Inflation is Taking Aim at Retirement Plans as Retirees Explore Options

The U.S. Bureau of Labor Statistics reported in July that consumer prices increased 9.1 percent — the most since 1981 — from June 2021 to June 2022, with energy prices taking the biggest hit. This includes motor fuel, electricity, and natural gas. 

Since many in retirement tend to live on fixed incomes, inflation spikes can take a serious toll on monthly budgets, especially when essentials like utilities are affected. 

“Higher expenses introduce additional risk to a retirement plan,” Brian Walsh, Senior Manager of Financial Planning at SoFi, told Forbes. “First, expenses may rise at a faster rate than their fixed income. This creates the need to either reduce spending or withdraw more money from investments during a bear market.” 

The conclusion — if you are in retirement or about to retire, the increased inflation may leave you feeling especially vulnerable as your purchasing power is significantly reduced. This is especially true if you are receiving fixed payments from Social Security, pensions, and other retirement accounts.  

Inflation began to go up during and following the pandemic as consumers began to demand goods more than services while the nation was also facing supply chain disruptions, according to the Council of Economic Advisers’ 2022 Economic Report of the President. 

In the pre-pandemic year of 2019, the Consumer Price Index (CPI) rose 2.3 percent; in 2021 alone, the CPI increased 7.0 percent, the council reported.  

Options for Retirees in the Face of Record Inflation 

But there is some good news for retirees. As consumer prices have gone up, so have home values.  

From September 2020 to September 2021, the Case-Shiller U.S. National Home Price index increased 18.6 percent, peaking in June 2022. While it has fallen slightly since then, the drop has not been significant, according to the most recent measurements.   

This increase in home values gives retirees several options for tapping into their increased equity. Options include selling their homes, taking out a home equity loan, a home equity line of credit (HELOC), or a home equity conversion mortgage (HECM), also known as a reverse mortgage. 

For those wanting to relocate in retirement, selling the home may be the way to go, especially if you are looking to downsize or move to an area where home prices are lower than your current location.  

Home equity loans and HELOCs can be used for major home renovations, consolidating debt, or covering unplanned expenses. However, the downside to these loans is that they will need to be paid back in the form of monthly payments either right away or at some point in the future.  

Grab this free guide to learn more about your options.

How a Reverse Mortgage May Help 

The solution that may give retired homeowners the most options while keeping monthly costs low is a HECM reverse mortgage loan.  

A HECM reverse mortgage is backed by the Federal Housing Administration (FHA), which is part of U.S. Department of Housing and Urban Development (HUD), and it is only available to homeowners who are 62 years of age and older.  

A reverse mortgage loan works by converting home equity into cash, and the FHA increased the lending limit for reverse mortgage loans in 2025 to $1,209,750 to account for rising home values.  

The HECM reverse mortgage helps thousands of senior homeowners and their families increase their monthly cash flow by reducing or eliminating their monthly mortgage payments. Homeowners are still required to pay property taxes, homeowner’s insurance, and maintain the home.  

For the remaining equity, borrowers have the option of receiving their funds in one or two lump sums, having the money distributed to them on a monthly basis in the form of monthly payments, keeping the funds in a line of credit they can access at any time, or any combination of the three.  

There are no rules for how the money may be used, and since the money is a loan, it is not considered income, and no taxes are paid on it.  

If you are 62 years old and have significant equity in your home, you may qualify to apply for a reverse mortgage loan offered by Mutual of Omaha Mortgage.  

To learn more, download this free reverse mortgage guide here or contact us today to talk to a reverse mortgage loan advisor who will be able to answer any questions you have about your specific situation.  

Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

Reverse Mortgages Can Provide Shelter During Market Storms 

If you’re retired and recently saw the value of your stock investments plunge, you’re probably facing two bad choices: Live on less until the market recovers or withdraw your usual amount.

Homeowners don’t qualify for a reverse mortgage loan until age 62, which also means that obtaining a reverse mortgage is a new process they are not typically familiar with. The catch on making your usual draw is that you need to sell off more of your invested funds to raise the same amount of money. Doing this could cause you to run out of money later in retirement.

This dilemma is especially serious in your early retirement years. If you continue to make your usual withdrawals, your savings decrease even more. The ideal course of action is to give your investment portfolio time to recover by reducing withdrawals. This is where a reverse mortgage can help.

With a reverse mortgage, you may be able to navigate smoother sailing in retirement by leveraging the value of your home. According to Shelley Giordano, co-founder (with Torrey Larsen, president of Mutual of Omaha Mortgage) of the University of Illinois Academy for Home Equity in Financial Planning, a reverse mortgage allows homeowners to draw from a line of credit so that they don’t have to tap more of their savings than they planned. And because there are no mandatory monthly mortgage payments, your cash flow will not be diminished.

By borrowing against the value of their home, homeowners can receive a lump sum, fixed monthly payments, or a line of credit to draw on when needed, Giordano says. In this transaction, homeowners aren’t selling their home to the lender — they retain ownership. Unlike a forward (or traditional) mortgage, which requires monthly loan payments, the loan balance on a reverse mortgage isn’t due until the last homeowner dies, moves out of the home or sells it.

Here’s an example of the problem retirees can face in a down market: Say a retiree has $500,000 in his accounts and usually withdraws 4 percent — or $20,000 — a year to meet expenses. If the value of the account drops to $450,000, he faces a choice: Get by on less — 4 percent of $450,000 is $18,000 — or take a larger percentage to receive the full $20,000. By taking the larger percentage, he also increases the risk he’ll use up his savings too early.

But if he has a reverse mortgage, he could use funds from this line of credit until his portfolio recovers.

Giordano has this to say for people who had established a reverse mortgage to hedge against a market downturn: “There’s evidence now that homeowners who prepared for a bear market are avoiding having to sell out of a losing portfolio, which is so devastating. Reverse mortgage services have reported that the draws people are taking from reverse mortgages are significantly larger and more frequent than before the downturn. Folks with reverse mortgages in place are relying on them as a substitute for portfolio distributions.” If you are ready to move forward with a reverse mortgage, here is an overview of the reverse mortgage process that you can expect.

Click here to get a free reverse mortgage info guide.

Reverse Mortgage: Not Just for Monthly Income

The vast majority of reverse mortgages are offered through institutions approved by the Department of Housing and Urban Development (HUD). The loan itself is insured by the Federal Housing Administration (FHA). An FHA-insured reverse mortgage is called a home equity conversion mortgage, or HECM. This type of loan, available for those age 62 or older, allows borrowers to pull equity from their home without paying a monthly mortgage payment. (Like with all mortgages, the homeowner continues to be responsible for paying property taxes and homeowner’s insurance as well as any maintenance of the home.)

Many people think of reverse mortgages simply as a way to receive secure monthly income or perhaps to receive a lump-sum payment. But establishing a reverse mortgage line of credit is another option for homeowners.

Giordano explains that when using the FHA-insured reverse mortgage’s line of credit, no monthly payment for the principal and interest is required for the money borrowed. Other benefits of using a reverse mortgage line of credit include:

  • The line of credit can’t be frozen, reduced or canceled as long as the terms of the loan are met.
  • The borrower can never owe more on the loan than what the house is worth when the loan is repaid.
  • An unused line of credit grows, regardless of the home’s value, owing to the way reverse mortgages are structured. It’s possible for the value of the line of credit to exceed that of the home.

In comparison, a regular home equity line of credit (HELOC) does require monthly principal and interest payments, is subject to more strict lending standards, and isn’t guaranteed by the FHA. There’s also no growth component to home equity lines of credit, and banks can cancel, freeze or reduce credit. In the last recession, for example, some homeowners who thought they were protected with a traditional line of credit were disappointed when the lenders refused to provide credit just when it was needed most.

The market has up and down cycles. When a portfolio rebounds and resumes its growth path, the homeowner could choose to pay down the loan so that the full line of credit is available in case of another downturn. There are no penalties for those payments. Otherwise, the loan can be repaid when the home is sold. The choice is the homeowner’s.

Reducing the Expense Side of the Ledger

A reverse mortgage also can help in a downturn by reducing costs in retirement. In good times, having a mortgage in retirement can be fine. “But the more mandatory obligations you have in a month, the more stress it’s going to put on your savings in bear markets,” Giordano says.

For example, if you have a $100,000 traditional mortgage and you’re eligible for a $150,000 reverse mortgage, you can pay off the traditional mortgage with the reverse mortgage. You’ll eliminate the monthly mortgage payment and have $50,000 credit availability left over.

Reverse mortgages aren’t for everybody. For example, those who plan to stay in their home for only a few years likely wouldn’t benefit.

But for many Americans, a reverse mortgage line of credit is worth discussing with a financial professional. It’s a way to avoid doing long-term damage to savings because of a downturn.

“The house represents about two-thirds of the average American’s net worth,” Giordano says. “That’s a big asset that isn’t being used.”

Want to learn more about how a reverse mortgage works? Grab this free reverse mortgage info kit or go here to find a reverse mortgage specialist near you.

Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees