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#215: Using a reverse mortgage funding to augment an inheritance

LEAVING YOUR HOUSING WEALTH, NOT YOUR HOUSING, FOR HEIRS

Widowed for the past decade, you’re grateful to have been able to keep up the management of the beautiful home where the two of you raised your children. Your hope is to live out the rest of your years there, but in the process of organizing your estate plan, you’re considering options for passing ownership of the property to your two adult children.  Neither your son nor your daughter wants to actually move here to Indiana, but you’re thinking of transferring half ownership to each while you’re still alive. That way, just in case of a medical setback that would force you to move, there would be no immediate need to prepare the home for selling.  

You should definitely consult an estate planning attorney. Transferring a home to your children during your lifetime (as opposed to naming them beneficiaries in your will or trust) may not be such a good idea, as Greg Daugherty points out in Investopedia. Assuming your home has greatly appreciated in value over the decades, when you die while still owning the home, there would be (under current tax law) a “step-up in basis“, avoiding a large capital gains tax liability for the heirs. That advantage would be lost were you to transfer your home to your children now.

What’s more, transferring ownership of your home to your children can prove a negative if you ever have the need to apply for Medicaid. (If your home was transferred within five years of applying for Medicaid, you would be deemed ineligible because you would have given away assets which could have been used to pay for your care).

You might wish to consider taking out a reverse mortgage as a way of establishing a source of growing wealth earmarked for your children. Although the process would entail some upfront costs, whatever portion of the equity you do not withdraw will continue to grow tax-free. Should you be forced to move out of your home permanently for medical reasons, your children would have six months plus possibly two ninety-day extensions to either sell the home (or satisfy the loan with their own funds).

It may not be practical for your children to inherit your home, but your housing wealth can be a welcome part of your legacy to them.

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.orgEqual Housing Lender

#214: Tapping home equity to avoid taking early Social Security benefits 

REVERSE MORTGAGE AS A MEASURE OF RELIEF FOR BOTH MOM AND DAUGHTER

As the only daughter (and the only unmarried, locally-based child) of a chronically ill parent, you are weighing the decision to retire at the end of the current school year (May 2025), in order to take on some of the duties of caretaking for Mom. You plan to continue occupying your own home (which is fully paid for), and which is fortunately within easy commuting distance of Mom’s condo (where she is determined to stay as long as possible). 

Although your mother has for years been receiving her own social security benefit, her resources are being inexorably depleted by the costs of in-home care; your goal is to relieve some of that financial pressure without severely jeopardizing your own financial future. You qualify for teacher retirement benefits from the state, but that monthly amount would not suffice to cover your own living expenses; you are considering claiming early social security benefits in addition to taking on some part-time teaching and tutoring work. (You’ve done a little research, learning that you will not reach “full retirement age” until the year 2027, meaning that your monthly social security benefit would be reduced quite a bit.) 

One option you appear not to have considered is using the equity built up in your own home as a financial resource. Using reverse mortgage funding, you could draw a monthly income for the next two+ years, avoiding the need to take early social security benefits. So long as you keep up with property taxes, insurance, and regular maintenance (which it sounds like you’ve been doing), you will not be required to make any monthly mortgage payments.* 

A reverse mortgage, set up as a line of credit, might prove the missing piece of the puzzle, as you piece together a plan to include teacher’s pension, part time work, and eventually full-benefit social security income, allowing financial relief for both you and your Mom.

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

“Let’s Wait and See What the FED Does”.   

I want to emphasize that this is never a “you have to do this” situation for me. My goal is to educate people so they can make informed decisions. I believe this approach is much better when homeowners choose to act because it’s advantageous, rather than feeling forced with no other options. This strategy can address many cash flow opportunities in either scenario.

One common obstacle I encounter is what I call FOBF, or the “Fear of Being First.” Most people would be surprised to see how many of their neighbors have already utilized a Home Equity Conversion Mortgage (HECM), or reverse mortgage, to extract some profit from their home. A simple search of their zip code could reveal the prevalence of this option.

Often, I hear clients or their advisors say, “Let’s wait and see what the Fed does.” However, this can be the wrong strategy because many don’t understand that Federal Reserve actions may not impact HECM rates — or if they do, it’s often not in a beneficial way. HECM rates are influenced by the performance of the 10-year Treasury, not the Fed’s rates.

For example, in the past three months (August-October 2024), people have questioned why the 10-year Treasury yield is rising even though the Fed cut rates by 50 basis points. The reason is that the Fed only controls the overnight rate, which is the shortest-term lending rate used between banks — comparable to a 24-hour Treasury bill (which, of course, doesn’t actually exist). In contrast, the 10-year Treasury yield is on the longer end of the bond yield spectrum. It is a forward-looking index, meaning any anticipated moves by the Fed are priced into the 10-year yield immediately. Therefore, the Fed’s actions often have little impact on the 10-year Treasury when they actually occur.

So, if you or your clients are waiting for a rate drop as it relates to a HECM, there is usually minimal to no benefit from waiting. In fact, there can be a disadvantage, since the money could have been growing and compounding in a line of credit during those months. Just some food for thought!

Keep in mind that the rate on a HECM does not come with a mandatory payment obligation of monthly mortgage payments*; instead, it determines how much the mortgage balance increases each month. Here’s an example of why waiting may not be beneficial: Suppose someone has $100,000 available in a line of credit, growing at today’s rate (compounded monthly, for this example). If they decide to wait six months, hoping for an event like an election or a Fed meeting to cause a favorable rate change, they could miss out on the compounded growth during that period.

Even if the 10-year Treasury yield drops by a quarter of a point over those six months, the difference would typically only result in a few hundred dollars. Locking in the line of credit earlier could secure a growth window with a defined floor and ceiling of guaranteed earnings, which seems more reliable than waiting on the Fed’s unpredictable decisions.

In the end, the Fed’s actions might have no impact on the line of credit’s earnings over those six or three months, or we might even start with a higher or lower rate. Remember: a lower rate equals slower growth in the line of credit, while a higher rate means faster growth. If you have any questions about this or other scenarios, I’m here to educate.

Donald Battista, NMLS ID 2030959. *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

#213: Using a reverse mortgage to buy investment property

HOME EQUITY 

Retired for the past nine years, the two of you have found various ways to supplement your income, with your wife teaching dance at a local studio and you doing handyman work and assisting at a roofing company. You long ago made the decision to continue living in your home, which is fully paid for and in excellent repair. While you do each have an IRA rollover portfolio and also jointly held investments, you’ve recently been reading up on the advantages of investing in rental property. Your intent is not to keep “flipping” homes, but to find one or two modest houses that need some remodeling, improve the properties, then offer those for rent. You both know younger couples who would appreciate that type of home and who would make good tenants.

From your reading, you know that the IRS would allow you to deduct some of the costs of maintaining those properties, and your own handyman and roofing expertise will prove valuable. Long term, you see this plan as a way of diversifying your sources of income. You’ve not yet pinpointed a specific site, but you know that, tax-wise, you will be able to deduct, for tax purposes, the costs of insurance, maintenance, and physical wear-and-tear on properties you acquire. Meanwhile, the reality is that you don’t want to commit sufficient funds to purchase properties for cash; however, you expect to have little trouble in qualifying for mortgage funding.

Rather than incurring mortgage debt on rental properties, consider using the successful real estate “investment” you’ve already made – your own home equity. Using a reverse mortgage line of credit, you can fund the purchase of and the improvement of rental investment property. With no obligation to make regular payments* on the reverse mortgage loan, you’ll be using your existing housing wealth with the goal of increasing “housing wealth” through new real estate ownership.

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

#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