Shortly after remarrying five years ago, you took out a reverse mortgage loan on your home, using a portion of the line of credit to totally modernize and equip the kitchen (she is a gourmet cook). At the time, your wife was only 59, and, in order to guarantee her the right to continue to remain in the home should something happen to you, she was listed as an “eligible non-borrowing spouse”, even though you kept sole ownership of the property. It was explained to you at the time that if you were unable to stay in the home, she would need to keep up with the taxes, maintenance, and insurance.

While the interest rate on your loan has definitely risen since then, homes in your neighborhood have greatly appreciated in value, and you are considering refinancing the reverse mortgage. You intend to remain the sole owner of the house, but since your wife is now “age-eligible”, you’re weighing the pros and cons of making her a co-borrower on a new mortgage. 

Whether or not the appreciation in the value of your home will translate into a significantly larger available line of credit (after the costs of refinancing the loan), there is a very important advantage to be gained by refinancing the reverse mortgage loan with your wife as co-borrower. As things stand now, should you either need to move out of the home into a care facility (or die before her), she is guaranteed the right to remain in the home but cannot access funds. As an eligible borrower, in contrast, she would have the security provided by access to the equity line of credit.

Eligible co-borrowers have access to housing wealth along with housing security.

David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

In your early eighties, you feel blessed, having never needed to collect benefits from the long-term care policies on which you’ve been paying annual premiums for the past thirty years. (Concerned by yet another impending escalation in the cost of the inflation rider, three years ago you accepted an option extended to you by the insurer to “freeze” the coverage at its then level, but knew the importance of continuing the coverage.)

Now, with their own two children through with college and self-supporting, your fifty-five year old son and his wife are in the process of purchasing their own long-term care coverage and have been asking for your advice. Since a major goal for them is to have their home fully paid for and in top-notch condition prior to retiring (in ten to twelve years), they are not anxious to spend any more than needed on the insurance coverage. They have been considering an option suggested to them of buying a higher amount of coverage to begin with and forgoing an inflation rider. The two of you, on the other hand, have watched other seniors and their families struggle with the inexorably rising costs of facility and home care, and you want your son and daughter-in-law to be as prepared as possible for their future.
 

As you obviously realized when purchasing your own policies decades ago, and as Julia Kagan points out in Investopedia, “LTC insurance is typically purchased years before benefits are drawn upon, but the future costs of medical care twenty or thirty years from today may greatly exceed the policy benefit.” 

One possible approach would be to have your son and daughter-in-law not only forego the inflation rider on their policies, but also agree to longer “elimination periods” (meaning benefits might begin months following a claim rather than immediately), in order to render the premium costs more affordable.

Once they reach retirement age, having achieved the goal of having the mortgage paid and the home in good repair, that housing asset can serve as a backup plan should the need for long-term care arise. With a reverse mortgage set up as a line of credit, medical care needs that might exceed the long-term care policy coverage can be taken care of without affecting their retirement or personal investment accounts. They will be under no obligation to make monthly mortgage payments,* and the unused portion of their home equity will be credited with growth at the same rate as the interest being charged on any borrowed funds.

It makes sense for your son and daughter-in-law to set basic long-term care protection in place now (at their current ages and health status), avoiding costly policy features and riders, focusing on paying down their remaining debt before retiring. Later, their housing wealth will be accessible to help cover future long-term care needs. 

With a HECM (Home Equity Line of Credit) reverse mortgage set up as a line of credit, you will have no obligation to make monthly mortgage payments,* and will be able to “draw” on that line of credit as needed to cover expenses.  

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*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. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

“Sisters, sisters, there were never such devoted sisters,” Bette Midler and Linda Ronstadt sang back in 2003, and the two of you embody the close-knit relationship depicted in that song…. 

When the second of your parents died, bequeathing the family home to the two of you sisters, for years you chose to use it as a rental property. Over the ensuing years, whenever one of you has faced health issues, the other has stepped up to help with meal preparation and errands, plus driving to doctor appointments. Finally, six years ago, you came to the decision to move into the property yourselves. Using a home equity line of credit (which is now almost paid off), you had some extensive remodeling done to accommodate your interests and somewhat diminished abilities. Widows both, with adult children living in other states, you have chosen to care for each other rather than moving to a retirement community or assisted living facility.

Paying household expenses has been done through a jointly held bank account, with each of you depositing a fixed amount of dollars into that account from your respective Social Security and pension money. In the process of reviewing your estate plans and health insurance coverage, it was suggested (at a seminar offered at your church) that you might consider a reverse mortgage on the home as a “buffer” against future needs.

Sharing a reverse mortgage can make a lot of sense for senior siblings sharing a home, offering each of you “housing security” should something happen that makes it difficult for the other to continue to shoulder half the financial burden. (When two people are approved to share a reverse mortgage, the mortgage remains in place until the permanent departure of the second borrower.) 

With a HECM (Home Equity Line of Credit) reverse mortgage set up as a line of credit, you will have no obligation to make monthly mortgage payments,* and will be able to “draw” on that line of credit as needed to cover expenses. Meanwhile, the unused portion of the equity will be credited with growth at the same rate as the interest being charged on the borrowed funds.

Since both of you will need to be approved as borrowers, as part of your estate planning, it will be important to give financial power of attorney to each other.

“Sisterhood is like a string that tethers you to each other for life,”  Ella Kelly wrote in “The Beauty of Sisterhood”.

*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. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender
 

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With a granddaughter diagnosed as intellectually and developmentally disabled, you have been contributing annually to the special needs trust your son and daughter-in-law established for her benefit several years back. Until last year, while you had been officially retired for a decade, both of you were earning consulting income. Those funds enabled you, without incurring debt, to redesign the family home so as to better accommodate your needs as you enter your eighties. 

For years, your granddaughter has been receiving government benefits, so that it was important for her to have funds for “extras’ without jeopardizing those “means-tested benefits”, and the special needs trust has been a great solution. 

As she has aged (now in her thirties), she’s developed several interests that you want to help her explore through private lessons in music and dance. Doing that, however, would necessitate raising your contributions to the trust by a substantial amount, and you’re reluctant to cash in investments or reduce your “reserves”, rendering yourselves less than prepared for any unexpected financial needs of your own.   

Rather than upsetting the delicate “budget balance” you’re achieved by redesigning the home while preserving your investment portfolio, and reserve funds, you might consider using your “housing wealth” to help your granddaughter pursue her new activities in music and dance. Since your plan is to “age in place”, you’ll be able to continue to enjoy your home, with no needs to make monthly mortgage payments.* In addition, the two of you will be more prepared to handle any future financial needs of your own.

Tapping into your own housing wealth might well help your granddaughter enjoy the “wealth” of dance and music’s therapeutic benefits.

*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. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

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Your husband’s receipt of an inheritance, combined with the recent sale of a piece of commercial property on your part has started the two of you thinking about upping the amount you’ve been contributing towards your grand-nieces’ college fund. (With no grandchildren of your own, you have, for the past few years, been making gifts to an Indiana 529 plan for each of your husband’s brother’s twin granddaughters, claiming the 20% state income tax credit for those education gifts.)

While you had originally talked about making 2025 joint gifts of $38,000 to each of the girls’ accounts, you read in a tax newsletter that one can “front load” 529s by putting in five years’ worth of contributions. However, even using the inheritance and the property sale profits, you’d need to sell off some jointly held investments to accomplish such a contribution, and that is causing you to weigh different factors before coming to a decision. 

Now both in your late 70s, you have enjoyed good health. At the onset of your retirement from full time employment a decade ago (you each still do some consulting work), you oversaw the completion of a major update to your home to make it more age-appropriate; it is not likely that major house-related expenses lie ahead. 

Knowing that you would still “control” the accounts and be able to use the money yourselves in case of some unforeseen turn of events or health emergency, you like the idea of letting your contributions more time to grow tax-free* inside the 529s before the girls actually begin their schooling. 

Since the 5-year Gift Tax Election allows donors to make this large contribution without affecting your lifetime gift tax exclusion; you might discuss your plan with an estate planning attorney. The total 529 “frontloaded” gift would be $19,000 per year, per beneficiary, or $95,000 for the five-year plan for each grand-niece, a total of $190,000.

Since the Federal Housing Administration has raised the national lending limit on reverse mortgages to $1,209,750, you might consider using a portion of your housing wealth to help you achieve your 529 funding goal. The unused portion of your reverse mortgage loan will continue to grow at the same rate as the interest as that being charged on the borrowed portion of your equity.

“Rerouting” a portion of the equity that has been building up in your home in the past can help you fund the two 529 plans in the present, helping your grand-nieces’ prepare for the future.

*Please consult a tax advisor. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

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For decades, your retirement planning was loosely based around the 4% Rule of withdrawals. Now, seven years in (two in full retirement), the two of you have been wondering about the long term sustainability of taking that 4% annually. Because a good deal of your money is in mutual funds, you follow articles by Morningstar, and a recent piece by Barbara Kohllmeyer seems to anticipate an economic slowdown. While you have absolutely no need for additional funds right now (both your home and your prepaid funeral expense plans are fully paid for and you have been very comfortable staying within your budget), you do not relish having to absorb any but the most modest cutbacks in your moderate lifestyle. Your wife is probably going to be receiving a small inheritance within the next couple of years, but you don’t want to base your income planning on that factor.

In basing your planning around the 4% Rule of income withdrawal, you seem to have considered only your investment assets, ignoring the equity built up in your home. Consider setting up a reverse mortgage structured as a “standby” line of credit. Yes, there will be some upfront cost, but the important thing is that in the event of an economic slowdown that affects your investments before your wife receives her inheritance, you will be able to readily access your housing wealth without putting further downward pressure on your portfolio. Meanwhile, whatever portion of your equity is not being used will be credited with growth at the same rate as the interest being charged on the outstanding loan balance.

Just as our national defense has a Ready Reserve Force on stand-by status, think of reverse mortgage funding as the Ready Reserve Force of retirement planning!

David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender

https://mutualreverse.com/david-garrison

Now about to enter your sixth year of retirement (for your wife it will be her third), you’re glad that after toying with the idea of moving to a nearby retirement community, the wisdom of your decision to “stay put” in your “big house” was confirmed after hosting no fewer than six grandkids and their parents for the holidays.

Both of you tend to approach big decisions systematically, considering all aspects and ramifications before moving forward. Had you decided to move, there would have been certain repairs and renovations needed before listing the home; now that you’re staying, you realize, the remodeling can be done in stages over several years, and you will be better able to time large withdrawals out of your portfolio and cash accounts. The home is fully paid for, and you’ve been careful to keep up with all basic maintenance needs.

Your regular income sources include an annuity payment from her former employer, Social Security (you have been collecting for four years, while she began to claim benefits just six months ago), rent from a property she inherited, regular withdrawals from your IRA Rollover account, and a jointly held investment account. You’ve made all investment decisions together, using a simple “pie chart” concept to keep stock, bonds, and cash “in balance”, checking in with your CPA to avoid triggering excess tax.

Your need for infusions of cash will undoubtedly increase as you have the home remodeled to enable “aging in place”. Since that would potentially disturb your asset allocation plan, consider freeing up your “housing wealth” to function as the cash portion of the “pie”. (Unlike selling investments or taking larger taxable withdrawals from your IRA, with a reverse mortgage set up as a line of credit, you can fund the home improvements without triggering any new taxes.) You might even be able to reduce the cash holdings in the joint investment account, all while maintaining your agreed-upon balance of cash, stocks, and bonds. Meanwhile, whatever portion of your equity that has not been tapped will be credited with growth at same rate as the interest being charged on the mortgage balance.

Allow your home equity to keep your assets in balance while preparing your property to serve your needs as both holiday hosts and retirees! 

David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender

https://mutualreverse.com/david-garrison

Having survived some serious post-COVID health challenges, the two of you are happy to be back to Plan A, involving the major home indoor and outdoor redesign you’d originally hoped to do right after retiring. With the newest estimates from contractors totaling some $120,000, you’ll be forced to both sell off some portfolio assets and apply for a home equity line of credit in order to fund the work.

Ongoing living costs have been comfortably handled through your pension, Social Security for each of you, and some of your wife’s special consulting gigs. You’d established a systematic withdrawal plan out of a jointly owned investment account, but were forced to take several large withdrawals to cover certain non-covered rehab therapies. While that joint portfolio has done very well, you’re reluctant to apply further strains on its value.

Ironically, the big dilemma inherent in the decision to move forward with the renovation concerns a block of stock your wife inherited from her parents, which has appreciated to an almost astounding extent. (In order to “net” $120,000, your accountant has estimated, you’d need to sell a chunk of those inherited shares close to double that amount!) In fact, one big goal of your estate planning was to have your four children inherit that stock some day with no need to pay capital gains. 

Redesign and Renovation Plan B need not involve straining the jointly held account, incurring a monthly mortgage obligation,* or selling appreciated stock. Consider accessing your housing wealth, but through a reverse mortgage loan line of credit, to be accessed as the renovations. progress. There will be upfront costs of establishing that line of credit, but the unused portion of the equity will be credited with the same rate of growth as the interest being charged on the borrowed funds.

Avoiding sales of the stock your wife inherited will preserve the possibility your children benefiting from the “step-up” in basis. The housing wealth you have now can help your children benefit later.

*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. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender

https://mutualreverse.com/david-garrison