02/27/2023

For many years now, the two of you have been environmentally conscious, participating in recycling services and bagging your own groceries in eco-friendly carriers. You each own a hybrid vehicle, with the plan to select an all-electric car for the next purchase. Retired two years ago, you’ve been focused on your home, and last year you put in a smart thermostat.

This year, with your home about to become mortgage-free, you are considering having a solar roof installed. To that end, you’ve been studying up on the increased tax credits for 2023 and reading up about the process itself. Needless to say, making a single upfront payment for the installation of solar roofing would result in the greatest overall savings, doing that would require cashing in investments, which would negatively affect your regular cash flow, even considering the tax break. A home equity line of credit could be a consideration.

You might consider “recycling” the equity you’ve built up in your home, tapping your housing wealth to make the home more eco-friendly. With the tax credit now raised to 30% of the cost, your net “cash flow” from investments will potentially increase without your needing to liquidate any of those assets. Set up as a Home Equity Conversion Mortgage or HECM, the reverse mortgage might allow for funding other needs that arise in later years. Meanwhile, the equity you have not used would grow at the same rate as the interest being charged on the portion you do use for installing the solar panels.

Using housing wealth can help reduce your taxes while reducing negative impact on the environment.

https://mutualreverse.com/david-garrison/

02/21/2023

For decades now, the two of you have been very level-headed when it comes to managing your investments, never succumbing to panic when movements in either stock prices or interest rates have made others frantic. With both of you having taken retirement from full time jobs a little under two years ago, you’ve been augmenting your income with part time lectures and consulting gigs (youth leadership is your field). Semi-annually rebalancing your portfolio to keep a conservative mix of stocks and bonds (basically the old 60/40) has become a habit.

Recently, however, with some rather major updates to your home completed and completely paid for, you’ve been turning closer attention to your investments. Your reading and media sources are describing an inverted yield curve, saying this predicts a recession. You’re tempted to rebalance your portfolio in a manner totally different from usual, moving almost all your money into stocks and lightening up on bonds, at least for the next couple of years…

While investment advice is not within the purview of this blog, one long term strategy you might consider is using your housing wealth as a “surrogate” element in your “portfolio”. With a reverse mortgage line of credit, dollars you don’t withdraw would grow at the same rate as the interest being charged on the mortgage balance. While reverse mortgage rates are based on a different standard (LIBOR/CMT) than bonds, the reverse mortgage could “stand in” for the “loaner” element in your owner/loaner portfolio balancing strategy, allowing you to move more heavily into stocks.

A reverse mortgage might very well help restore the “balance” in your investment plan.

https://mutualreverse.com/david-garrison/

01/29/2023

While your career as a corporate spokesperson will be coming to a close later this calendar year, you will be continuing to offer coaching to executives on interacting with members of the press. In preparing for retirement, you have set the basic elements of insurance and estate planning in place: your home is paid for, and your basic income needs going forward can be satisfied by a combination of the plan from your employer, Social Security, and carefully moderated withdrawals your own investment portfolio. You have been largely blessed with good health, and, as a single woman with no obligations towards parents or children, you expect to be able to develop and run the coaching practice for the next decade or even longer. 

The only financial challenge is that you plan to have several cosmetic procedures over the spring and summer of 2023, as you prepare to “face the public” as an independent contractor, teaching high-level executives to most effectively do the same. Your original plan was to avoid financing charges (some $63,000 is the estimated total) by making a series of lump sum withdrawals out of your investment accounts. Ironically, those investment accounts (similar to your appearance, you’ve wryly noted) are somewhat the “worse for wear” at this time. 

It’s obvious you’ve devoted thought to your future and to your post-retirement “gig” venture as a coach. Consider using your housing wealth to move forward with your plan. With no obligation to support family members, you can “support” your own choice to undergo surgery in preparation for your career as an independent executive coach through a reverse mortgage line of credit. Your investment portfolio will be granted time to recover, while you will be putting a “fresh face” on your career. 

https://mutualreverse.com/david-garrison/

01/23/2023

With retirement now on the horizon (your husband plans to retire at the end of 2024, just after he turns 66, with you retiring the following spring at age 65), you’ve resolved to begin the 2023 year by making oversized mortgage payments each month. The goal – retiring with your home at least close to totally paid for. Without the extra effort, the mortgage would not be paid off until the end of 2027.  

Granted, given the recent rise in everyday costs of living, the extra payments will require a significant cutback in lifestyle on your part. Still, the interest rate on the mortgage is certainly quite low compared to rates today on any kind of borrowing. Plus, given the dismal performance of your retirement plans and other investments this past year, the notion of retiring mortgage-free is very appealing. 

You might consider approaching the situation from a different direction, replacing the “forward” mortgage on your home with a reverse mortgage. While you would have no obligation to make monthly payments at all, you could continue making the same payments you’re now making on the mortgage, or even make the “oversized” payments you’ve been contemplating. The big difference – rather than just retiring your debt, you would be converting your housing wealth into a “reserve fund” that would function as a line of credit for future tax-free withdrawals. 

https://mutualreverse.com/david-garrison/

01/17/2023

Although grieving the loss of your husband five years ago and continuing through the first two years of your own retirement, you were beginning to feel you had your financial affairs under control. This past year, however things have become increasingly stressful for you. The dramatic drop in the value of your retirement accounts (both your own and the one inherited from your husband), has frightened you. Each IRA has been set up on a Systematic Withdrawal Income plan; you depend on the monthly distributions to maintain your lifestyle. 

The rise in costs together with the drop in account values have caused you to seriously reconsider your decision to defer taking Social Security benefits for another two and a half years.  (Even considering the much-touted increase in 2023 Social Security benefits, you realize, the monthly amount you’d receive would hardly approach the level of the investment distributions, even on an after-tax basis.) On the other hand, as patient an investor as you are, you know you cannot continue to place a drain on your accounts. Changing to a “safer” investment mix would not only be a mistake, you realize, but severely curtail the distributions over the long haul…. 

Assessing your overall situation, you can count several positives: You are content to remain in your fully-paid for home, and you have a paid-up long term care policy. It is merely the monthly income plan that has become “out of sync” with today’s reality. Much as you dislike interrupting the planned maximum deferral of Social Security benefits, turning the spigot to “On” appears to be a better idea than depleting your accounts. 

A solution to the twin dilemmas you’ve described might be provided through tapping the value built up in your own home. Regular withdrawals out of a reverse mortgage line of credit would replace the systematic investment withdrawals out of the IRAs, allowing those accounts time to “recover”. What’s more, since the reverse mortgage distributions would be tax free, you would need to take less out each month than what you now withdraw from the two IRA accounts. Not only would you be giving those IRAs needed “recovery time”, but it is also quite possible that you could continue, at least for a while, deferring Social Security benefits. 

In that sense, your housing equity would be doing double duty, easing your own stress, while allowing both the IRA account and the Social Security “rest and recovery” time! 

https://mutualreverse.com/david-garrison/

01/10/2023

With the divorce pending, your soon-to-be ex-wife is moving to another state. You, meanwhile, are remaining in the home, buying her out of her share. With both of you retired from full time careers, (you’re 72, she 69), you continue to work as a contractor on engineering projects. Your home is fully paid for, and maintaining it poses no financial problem for you. However, you would need to liquidate a substantial portion of your retirement investments in order to buy out her share, and that would create a substantial tax liability. The divorce settlement itself is still being mediated, with several sessions still to come later this month, and you want to have a viable plan to propose. 

Using the built-up equity in the home itself (in the form of a reverse mortgage) might prove to be the best source of funds for a substantial portion of your “buyout” of her interest in the property, allowing you to avoid cashing in retirement assets. Your divorce attorney’s can help you through the mechanics  of the legal process. Once your wife has received her share and the ownership of the property has been transferred to you, you would have no obligation to make monthly mortgage payments, only to cover real estate taxes, insurance, and maintenance costs. (Once all the formalities have been settled, you may find you wish to make some reverse mortgage loan repayments, after all. Not only would those serve to reduce the mortgage balance and minimize interest costs, but every dollar paid would go into your Line Of Credit, which would grow at the same rate as that being charged on the mortgage balance.) 

A reverse mortgage can serve as a mechanism for “splitting up” your biggest asset while keeping your retirement accounts largely intact.  

When you retired five years ago, relocating from the northwest to Indiana to be closer to family, you made the decision to rent a luxury apartment rather than rushing into a permanent home buying choice. As a widow, what with COVID and the crazy competition for homes, you thought it best to postpone purchasing a “forever” house until you get settled in your new location.. These days, while you’ve enjoyed the amenities of your apartment community and the proximity to a big downtown, you’ve been considering becoming a homeowner again, with fewer restrictions and more space to entertain your growing circle of friends, not to mention hosting “sleepovers” for your granddaughters and their friends. A Master Gardener, you’re ready to get back into growing your own veggies and flowers.  

Both your children and their partners are doing quite well financially and are not in need of your help. You have been contributing to a 529 plan for all three granddaughters. You will be choosing a home with an eye to aging in place” rather than going to a retirement facility. You have enough  money to make a substantial down payment and, even with the escalation in housing prices over the past couple of years, everything is certainly less expensive here than out West. You estimate that the money you now spend on rent would more than suffice to make mortgage payments, plus keep up with normal maintenance (obviously you will seek to buy a home that has been kept in excellent condition).  

A reverse mortgage might provide a very good solution to acquiring your “forever home”. A HECM for Purchase is a program insured by the Federal Housing Administration.  You would use the resources you’ve mentioned to make the down payment, but, there would be no obligatory monthly mortgage payments. While you’d be responsible for insurance and upkeep of the home, the dollars you now use to pay rent could be used for your own lifestyle needs. Or, consider making non-obligatory payments against your reverse mortgage loan balance. Not only would those serve to reduce the mortgage balance and minimize interest costs, every dollar paid would go correspondingly into Line Of Credit guaranteed to grow at the same rate the mortgage balance accrues interest.  

Your financial advisor might agree that this line of credit could then serve as your “cash reserve”, which would allow you to possible invest other cash assets more aggressively in the market. 

 You’ve gone from owning to renting; now, with the help of a reverse mortgage, you could complete the cycle, going back to owning your own home. 

https://mutualreverse.com/david-garrison/

12/27/2022

Ever since their father’s death three years ago, your son and daughter have been urging you to move closer to your daughter’s location in eastern Indiana. Now age 73, you had envisioned remaining in your present home for the remainder of your life, but now, the idea of moving closer to the children has begun to appeal.   

Although you imagine your condo, as has been the case with several of your neighbors’ homes, would sell at a very acceptable price, the proceeds would hardly be enough for you to afford a place in a very desirable 55+ community nearest your daughter’s family. Your condo mortgage was fully retired more than a decade ago, and you don’t want to take on a monthly obligation at this stage in your life.  

Consider acquiring that 55+ community property using a reverse mortgage (called a HECM for Purchase, a program insured by the Federal Housing Administration).  With the proceeds from the sale of your present home providing the down payment on the new, more expensive property, you could move to the new location, remaining there for the rest of your life. While you’ll be responsible for upkeep, property taxes and homeowner’s insurance, there will never be the need to make monthly mortgage payments. 

Someday, if and when you decide to move or sell the new home, or upon your death, the home’s sale proceeds will be used to pay off the loan.  Meanwhile, with the help of a reverse mortgage, you’ll be able to move “up” into a more expensive residence, and most important, be near your family members. 

https://mutualreverse.com/david-garrison/

Your 85-year old widowed mother is becoming less and less able to manage her large home in central Indiana. With you hours away in eastern Illinois, your plan had been to help Mom move into a retirement community. Mom, though, is adamant that she wants to stay at home for the rest of her life, bequeathing the house to you after she passes. Although there is only a very small mortgage remaining, Mom could not afford to keep up the house and also pay into a retirement community. In prior conversations, she has been amenable to hiring part time in-home healthcare assistance.

As fate would have it, your current employer is expanding eastward, and a position has become available less than an hour’s drive from your mother; you have an excellent chance at being appointed to take over that territory. Now age 59, your plan is to continue working full time for the next eight years, at which time you will qualify for full social security benefits.  In terms of moving, you have been renting an apartment, so there will be no problem relocating except for the costs of early termination of your present lease. While until your job transfer has been approved, you have not wanted to discuss any new arrangements with your mother, one possibility you’ve considered is moving in with her and paying rent, which would help with her expenses along with your own. 

Given that a) your mother intends to remain in her home for the rest of her life, b) you are the intended sole heir to the home someday, and c) you would consider living in the home yourself starting now, a HECM Reverse Mortgage on the property might be a great way to satisfy all those goals. 

As a senior homeowner, your mother could use a reverse mortgage to tap into the equity built up over the years, owing no monthly mortgage payments.  She’d still be responsible for paying property taxes, insurance, and maintenance costs, but the repayment of the loan would be deferred until her death (or until she were forced to move out of the home). With the loan set up as a line of credit, the equity could be used to pay for Mom’s in-home nursing assistance as needed.

You, as a non-co-borrower on the reverse mortgage, could stay in the home for as long as Mom is still living there. If she were later forced to relocate to a facility (or upon her death), you would need to repay the loan in order to remain in the home. However, you will never have to pay more than the remaining balance or 95% of the home’s appraised value, whichever is less.

Of course, once your job situation has been made more  clear, it would be a good idea for you and Mom to visit with an estate planning attorney to make sure both your needs and hers are being best served.

It could be that “fate would have it” for you to “go home” again, using a reverse home mortgage!

David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894