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#212: Using a reverse mortgage to fund a 529

HOME EQUITY CAN FUND GRANDKIDS’ FUTURE NEED — OR YOUR OWN

Shortly after each of your grandchildren was born, you would start a 529 account in each one’s name, making modest additions to those accounts every year on their birthdays. Their parents also contributed, and those accounts ended up being a big help to your grandkids (the youngest is still now in school), helping fund “extras” that are really necessities, such as laptops and other electronics and special workshops. 

Both of you are now fully retired, (and, along with every else, are feeling the squeeze of rising costs). Still, you went ahead and opened a 529 account for the one great-grandson with $16,000, and with twin granddaughters on the way, plan to continue the tradition (if the twins arrive in 2024, the amount will be $18,000 each). Meanwhile, talking about college funding has caused you to focus on your own cash flow, and you have been attending a number of financial seminars. 

One topic that was covered was, in fact, 529 plans for grandchildren.  You learned that, as of this very year, assuming you name yourselves as owners of the 529 plan (with the grandchild as the beneficiary), you can maintain control of the account without affecting the grandchild’s ability to qualify for financial aid. Later, if there is unspent money in the account, you would be able to use that money yourselves by rolling it over into a Roth IRA. 

Despite the new flexibility of 529 accounts, you are still faced with deciding what monies to use for the contributions. You have a systematic withdrawal plan set up on your joint investment account and on each of your retirement accounts; funding three new 529 accounts in one calendar year might prove a “push”. In the early years of retirement, you totally remodeled your home, taking out a home equity line of credit which is now almost paid off, and you could use that for funding the new education accounts. 

Consider a different way to use your housing wealth. Using a reverse mortgage line of credit, you can finish paying off the existing credit, avoid tapping your investment and retirement accounts while using tax-free* withdrawals to fund the two new 529 accounts. With no requirement to make monthly mortgage payments,** you’ll be using your own equity to fund your great-grandkids’ future needs – and possibly your own needs later on.

https://mutualreverse.com/david-garrison

Readers, if you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).

*Please consult a tax specialist. **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

#211: Using a reverse mortgage to prepare for future cost escalation

HOME EQUITY CAN BE THE KEY TO PROACTIVE PLANNING

Retirement planning means a complete review of retirement needs, including health care and end-of life planning, an article in the October issue of Financial Planning magazine reminds readers in a piece about Long-Term Care insurance. While clients with sufficient assets might prefer to self-fund, consideration of possible costs must always be considered a part of retirement planning. 

A second article in the same issue cautions advisers to include in their discussions with clients another “growing area of expense”, property taxes, which are “gobbling up a larger share of homeowner budgets”. According to data from the National Association of Homebuilders, the 12-month total for state and local property tax revenue jumped 9% year over year in the first quarter of 2024.

While clients may see no need for additional income either presently or in the foreseeable future, strategic planning must include housing wealth. With a reverse mortgage set up as a future line of credit, (with the un-borrowed portion of the equity guaranteed to grow, tax-free ,at the same growth rate as the interest being charged on the mortgage balance), for even higher net worth clients, their housing wealth can  be the key to proactive planning for future escalation in housing and healthcare costs.

https://mutualreverse.com/david-garrison

Readers, if you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).

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. Please consult your 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

#210: Thorough financial planning can include both life insurance and housing wealth

PLANNING DISCUSSIONS WITH SENIORS TO INCLUDE ALL ASSET TYPES

Similar to the misconception that reverse mortgages are last-ditch tactics for cash-strapped retiree homeowners, is the notion that taking a life settlement in exchange for one’s life insurance policy represents an inability to pay premiums and an urgent need to raise cash.

An interesting study reported in the Journal of Financial Planning discusses the behavioral finance implications of seniors who are no longer in need of a permanent life insurance policy accepting a life settlement offer in exchange for their policy. “The financial planning community consider many alternatives to suggest to their clients,” study author David Smith, PhD, CLU, ChFC, CFP® explains, and the study is meant to guide advisors in assisting their clients’ decision-making when comparing economic proposals..While retirees may have purchased life insurance to pay off a mortgage at their death or to provide for grandchildren’s education, these needs may no long be present, and the policy represents an asset which can enhance income rather than continue to represent a cost factor. “If the planner is unfamiliar with life settlements, they should seek experts for assistance,” Smith cautions.

Just as the duty of a financial planner lies in helping help clients evaluate all available options for managing their assets might include accessing the value of life insurance through life settlements, housing wealth can be accessed through reverse mortgage financing. And, just as planners can seek guidance from life settlement experts, planners can seek out and recommend experienced reverse mortgage professional regulated by Housing and Urban Development.

While both life settlements and reverse mortgages might be sought after by retirees having difficulty covering their costs of living, high net worth seniors need financial planning guidance in using their insurance and housing assets to their greatest advantage.

https://mutualreverse.com/david-garrison

Readers, if you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).

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

“Oh, you all take the home!”

That’s what I heard from a vendor at a professional event for financial advisors and insurance professionals. It was another reminder that many people still don’t know how a reverse mortgage works. And just how helpful this type of mortgage is to thousands of Americans in their retirement. 

As a housing wealth advisor, that statement is both my Kryptonite and my opportunity. 

  • Kryptonite, because it reminds me of the disservice that actions in the industry pre 1988 has done to the public, who could benefit from the true facts on this product. 
  • Opportunity, because it gives me a chance to clear up and show another person who was misled by the past. 

When we talk about protections, we’re talking about The Modern Reverse Mortgage.  In 1988, President Reagan took the reverse mortgage and put it under the management of HUD. HUD weeded out the bad actors and built in protections. One of those being FHA insurance. This is, in my opinion, the most important! The FHA insurance protects the homeowner, their heirs and their estate from ever owing more than the home is worth. 

Along with that important protection, there are some guarantees that come along with the mortgage. We call them the “4 Nevers”:

  • You never give up title to your home.
  • You never owe more than the home is worth.
  • You never have to move.
  • You never have to make a mortgage payment.
    • (a) You never pay taxes on the proceeds of the reverse mortgage.

Now along with the 4 Nevers, you have some obligations:.

  • The property must be your primary residence.
  • You must keep up to date with all property related charges (we can also set up escrow for that in specific cases).
  • You must maintain your homes condition. 

Those all seem very simple, but let’s talk some more about protection for the borrower. The borrower(s) is required to go through a counseling session with a third-party HUD counselor. The counselor does not work for a lender, they work for HUD. This session in most cases is done over the phone (some states require in person) and is usually an hour and a half or so. It’s there to make sure the homeowners understand the math and obligations/protections that I just stated. It’s also a check and balance to make sure the loan officer working with the clients has told them everything they need to know. 

Homeowners learn this is a non-recourse loan. Meaning they are never held liable for monthly mortgage payments. The home guarantees the mortgage, and thus allows them to live a better retirement with their housing guaranteed and the ability to have more personal cashflow that is not taxed. The mortgage is never due until the last remaining borrower exits the home permanently. The protections even go past that to the heirs “in the end”. 

The last protection I will cover is the right of recission. The homeowners have 3 business days after signing their closing documents to opt out for any reason. 

There is more, but I will leave you with this. This is not a one-size fits all. It is a valuable “Fourth Bucket of Retirement” and “If this could cure a worry or bolster a plan for retirement, would you like to see how it works?”

Donald Battista, NMLS ID 2030959. Please consult a tax professional. 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. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Arizona Mortgage Banker License 0926603. Florida Mortgage Lender Servicer License MLD1827. Louisiana Residential Mortgage Lending License 1025894. Oklahoma Mortgage Lender License ML012498. Texas Mortgage Banker Registration 1025894. 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

Using the HECM to Help Manage Finances in Our Golden Years

Remember the old saying “The only two things guaranteed in life are death and taxes”?

I don’t want to be that blunt, but there are some things that are guaranteed, and I am going to address 3 of them as they apply to homeownership and aging. 

  • You grow older every day, it is inevitable.  
  • You must pay some form of taxes unless you have very specific strategies and fall into specific categories which have exemptions.
  • If you own a home, while it is not required to have homeowner’s insurance (Unless you have a mortgage) it is for most people a non-negotiable protection that they want. 

Let’s look at growing older: As we grow older (once we retire) some of us lose capacity to remember things. I like to say, “My head doesn’t have more room in there to store this” and thus I need a reminder. It used to be back in the day a reminder was a string tied to your finger, then a calendar on the fridge, then a paper planner, then an electronic calendar, and as technology progressed all those went to an electronic format. Which now brings us to auto pay and electronic transfer. 

 Let’s look at managing those payments: Now we tie in number 2 and 3 with the thought that “I have to pay my taxes and Insurance” maybe around the same time and those numbers are never going down.  Some folks pay their property taxes twice a year, most I think pay them in December or January when they are due in one lump sum. What if we could automate this to not only make sure its done on a specific date for each, but with funds that are already sitting there? An escrow account of sorts, but with one special feature. IT GROWS! Using a voluntary “Life Expectancy Set Aside” is an ingenious way to not only auto-pay your property related charges, but to save you money doing it in most cases. I will give you a brief explanation just to whet your appetite, then it’s up to you to ask me for items specific for you or your client. 

In most cases: Clients can set aside proceeds from their adjustable rate HECM to sit in an escrow like account that grows at the same exact rate as the rate on the adjustable rate HECM. This function is only available on the adjustable rate never the fixed. That money sits there and as I stated before grows and compounds at a rate equal to the interest rate on the mortgage. They can choose either a monthly adjustable or annual adjustable that has safety controls built in like a 5% or 10% cap on the rate. Those caps are lifetime caps, and the escrow account also has a “floor safety net’ that it will not go below. 

In other cases: If the client does not have enough equity to cover the property taxes and insurance for life expectancy, we still  have a way to save the money. You can watch my video with Steve to see this here.  https://youtu.be/siJJS7S5Ex4?si=wKQi1HbvbxG5ZXaA

It is as simple as dropping the money monthly in to an account that has proven to grow at a rate higher than any savings account that I can find at any bank. I cant quote you the numbers here, but I can easily show you how it works, and arming you with that knowledge will assuredly benefit you in retirement! 

Donald Battista, NMLS ID 2030959. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Arizona Mortgage Banker License 0926603. Florida Mortgage Lender Servicer License MLD1827. Louisiana Residential Mortgage Lending License 1025894. Oklahoma Mortgage Lender License ML012498. Texas Mortgage Banker Registration 1025894. 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

#209: High net worth clients can use a reverse mortgage to control taxable income

HIGH NET WORTH CLIENTS CAN USE HOME EQUITY IN TAX PLANNING 

In last week’s blog post, we talked with a 69-year old gentleman who had chosen to defer social security benefits to age 70 and who was hoping to continue deferring IRA withdrawals until age 73.  While he’d been able to offset some of his “gig” earnings with business expenses, thus mitigating the tax burden, his concern was that should that income decline, forcing him to begin IRA withdrawals early, the “tax haircut” on the combination of social security and IRA withdrawals was going to be dramatic. 

We suggested that, with a reverse mortgage on the home he shares with a life partner, he could arrange for non-taxable, to-be-accessed- as-needed – income to supplement the social security income, allowing him to continue deferring withdrawals from IRA over the next four years. In a sense, he’d be using the equity in his home as both a safety net and a tax deferral tool. 

In a recent article in Financial Advisor, Ed Slott actually advises people with high income and/or high net work to do the exact opposite. The tax deductions offered by IRAs and 401(k)s are merely loans from the government that will have to be paid back at the worst possible time, he says. Worse yet, he warns, “the payback may come from the accounts’ beneficiaries, who could inherit in their worst earning (and peak tax bracket) years”.

Post the final SECURE regulations, Slott advises, RMD are to be ignored. Think “maximum”, not minimum – How much can be withdrawn now, and in the near future, at relatively modest tax rates?  It’s time for un-required distributions. Use the money to buy insurance payable to descendents or to up charitable contributions, and convert traditional IRAs to Roths.

For such high net worth individuals, we add, housing wealth can also be part of a “think now” plan to accumulate wealth that can be passed on to beneficiaries with little or no tax consequences. Not only are reverse mortgages unfortunately often considered as an option of last resort, as Emile Hallez quoting Dr Wade Pfau points out in Investment News, but used strategically, they can be part of financial planning in retirement. When used strategically by high net worth homeowners, the reverse mortgage can end up leaving heirs with more than they otherwise might have.

With a reverse mortgage, the un-borrowed portion of the equity is guaranteed to grow, tax-free, at the same growth rate as the interest being charged on the mortgage balance. Unlike the case with traditional IRA accounts, that “growth” is not a “loan from the federal government”, and generates no tax liability. When the second of the two homeowners dies, heirs may refinance the home and keep it, or choose to sell it. (Whatever step up in basis tax rules in effect at that future time would apply.)

For high net worth home owners, housing wealth can play an important role in post SECURE Act planning.

https://mutualreverse.com/david-garrison

Readers, if you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).

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

#208: Using a reverse mortgage to control taxable income

HOME EQUITY CAN BE A TAX DEFERRAL TOOL 

Officially retired three years ago from your corporate position, you chose to defer social security benefits to age 70, allowing the amount to increase. You’ve been able to earn part time income, avoiding the need to tap your IRA rollover account. In fact, you’re hoping to defer IRA withdrawals until age 73. 

Just turned 69, you share your home with a life partner (same age, also retired), and the two of you split both regular expenses and repair costs. Long ago, you made the decision together to keep living at home just as long as health and vigor allow. In looking ahead, though, you realize there’d be little point in continuing to defer social security benefits past age 70. Meanwhile, you’re concerned that, should your part time income decline, forcing you to begin IRA withdrawals early, when combined with the social security benefits, the tax “haircut” is going to be dramatic.

Sounds as if you’ve been proactive when it comes to both income and tax planning, but haven’t considered housing wealth as an income source. With a reverse mortgage, you can arrange for non-taxable, to-be -accessed- as-needed – draws for your line of credit to supplement the social security income. thus, allowing you to continue deferring withdrawals from IRA over the next four years. The equity you’ve built up in your home will serve as the sole collateral needed for the mortgage, and there will be no mandatory mortgage payments. 

Yes, eventually, the tax will need to be paid on both social security and on the mandatory IRA withdrawals. In the meanwhile, though, the equity in your home can serve as a safety net – and a tax deferral tool. 

https://mutualreverse.com/david-garrison

Readers, if you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).

This is not tax advice. Please consult a tax advisor. 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

#207: Using a reverse mortgage to prepare for health care services at home

THINKING AHEAD ABOUT CARING IN PLACE 

Several of your neighbors have sold their homes, with one moving to live with her daughter in another state, the other relocating to a suburban retirement community. But, for your part, you’ve made the firm decision to continue living in your own modest-size Indianapolis home. With all your favorite volunteer and social activities within short driving distance, you are reluctant to ‘start over”. The long-time relationships with various maintenance service providers are also reassuring, and for bigger jobs, your one son has always found good contractors. 

Widowed nine years ago, your income includes Social Security survivor benefits, an annuity from your late husband’s company, and a systematic withdrawal from each of two investment accounts. While you share everyone’s concern about the rise in costs for groceries, gas, and insurance, you feel prepared to cope moving forward.  

What does have you worried is the possibility of needing assistance at home later on.  Even though you’ve kept up with the premiums on a long term care insurance policy, you realize that in the future, even if still “in good health for your age”, you might get to the point of needing more help with household tasks and even with self-care, leading to an unsustainable financial strain.   

Tapping your housing wealth might be the answer to your very legitimate concern about needing help managing your own household tasks and personal care at some future point as you “age in place”, with your home equity becoming a revolving line of credit you can use to fund those future possible needs. In the interim, there will be no need to make monthly mortgage payments. By taking such good care of your home, you’ve actually created a guaranteed to grow “rainy day” fund for later years, allowing peace-of-mind about “caring in place” even as you enjoy “aging in place”.

https://mutualreverse.com/david-garrison

Readers, if you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).

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

#206: Using a reverse mortgage to allow deferring Social Security benefits

IN A QUANDARY ABOUT DEFERRING SOCIAL SECURITY BENEFITS 

After attending three different seminars, plus listening to umpteen radio ads about leaving six figures on the table when claiming Social Security benefits the “wrong way”, you’re still in a quandary as to the best route to take. With your planned retirement date (career curtain time”?) only six months away (you will have turned 68), you are weighing alternatives. 

You lead an active social life, but have never married or even lived with anyone. While you offer occasional financial assistance to a sister, on an ongoing basis, you have only your own future needs to consider. You’ve owned your home outright for decades, taking pride in keeping both house and grounds in tip-top shape. As an avid vegetable gardener and amateur “gourmet chef”, you find this location to be a perfect fit for your solo lifestyle, offering ample space to entertain. 

With no mortgage to pay, you believe you can support yourself using a combination of regular withdrawals from your investment account and from your 403(b) plan, with some income from the handyman jobs you do on a regular basis for a select group of neighbors. On the other hand, insurance premiums, on both your homeowners and your long term care policies, keep rising. You’re still not sure whether it makes sense to wait the two years before applying for Social Security benefits. Will the value of your 403(b) accounts not be more likely to outpace the increased Social Security benefits?? 

In considering different courses of action, one you have not mentioned is using your housing asset as an income source, converting your home equity into a source of spendable funds through a reverse mortgage. With no monthly payments due, the line of credit would be there as needed, allowing you to avoid tapping your 403(b) and also to allow your Social Security to earn delayed retirement credits.

You would continue to own and maintain your home. In fact, if future appreciation occurs, you might later choose to refinance the reverse mortgage, increasing your available resources even further.

Your lovingly maintained property itself might itself offer “ample space” to “entertain” the idea of capturing those delayed retirement credits.

https://mutualreverse.com/david-garrison

Readers, if you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).

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