Skip to content

Archives: Blogs

Blogs for Loan Officers

The Complete Guide to Reverse Mortgages

   

Homeowners who are near or in retirement often find themselves in need of additional funds. Whether they’re looking to increase their monthly income, cover a large project such as a home renovation, or have a line of credit they can draw from in case of emergency, accessing extra cash can be a challenge. 

It’s not uncommon for older homeowners to have a large amount of their net worth tied up in the equity in their home.    

This money can be accessed through products such as a Home Equity Loan or Home Equity Line of Credit (HELOC), but both options will need to be paid back in the form of monthly installments.   

Retired homeowners may not be able to afford that or simply don’t want the additional costs in retirement.   

A reverse mortgage is another option for accessing equity in a home. Not only does it eliminate any monthly mortgage payments, but it also gives homeowners a handful of options for how they would like to receive the cash.   

This complete guide to reverse mortgages will walk you through everything you need to know about this unique financial tool.   

Chapter 1: What is a Reverse Mortgage?

In this section, we cover all the basics of a reverse mortgage. This includes what it is, how it works, the rules and requirements, and more.

reverse mortgage basics

What is a Reverse Mortgage?  

A reverse mortgage loan is a safe and secure financial product that allows homeowners who are 62 years of age or older a way to access the equity in their homes without taking on additional monthly payments.  

The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA). We offer this type of reverse mortgage here at Mutual of Omaha Mortgage.  

The HECM reverse mortgage is a loan just like a traditional mortgage, but instead of making monthly payments to a lender, it allows seniors to receive payments from the lender in the form of a lump sum, a line of credit, monthly payments, or a combination of the three. 

The variety of ways that reverse mortgage funds can be disbursed means that it can help homeowners in various situations and with various needs. It is not a one-size-fits-all solution.  

For example, it may provide a way for seniors to afford to retire in place, but it may also simply allow seniors to have additional financial freedom in retirement by providing them with funds to pay off credit card debt or make home renovations without having to tap into savings.    

Let’s learn more about how a reverse mortgage loan works.

How Does a Reverse Mortgage Work?

A reverse mortgage loan converts a portion of your home’s equity into funds paid directly to you.

The amount of money you receive is based on the age of the youngest borrower, the market value of the home, and current interest rates. The total amount that borrowers receive from a HECM reverse mortgage typically ranges from 40 percent to 60 percent of the home’s value.

The FHA puts a lending limit each year on how much lenders can loan to reverse mortgage borrowers. The lending limit for 2024 is $1,149,825.

The older the homeowner, the higher the value of the home, and the lower the interest rate, the more you will be able to receive. Our reverse mortgage advisors will be able to provide you with more specifics about your individual situation.

The loan amount is also able to increase over time if your loan has a variable interest rate. The variable rate also gives you more options for how you may receive your money. Some of those options include:

  • Monthly payments as long as at least one of the borrowers continues to live in the home
  • Monthly payments for a fixed number of months
  • A line of credit
  • A line of credit combined with monthly payments
  • A lump sum disbursement combined with monthly payments
  • A lump sum disbursement combined with a line of credit
  • By comparison, if you choose a fixed interest rate, you will only be able to receive your funds in a one-time lump sum payment.

Mutual of Omaha Mortgage also offers a jumbo loan called the HomeSafe Reverse Mortgage that allows homeowners to access significantly more equity, for those who may qualify for more.

Homeowners are still required to pay property taxes, homeowner’s insurance, any homeowners association (HOA) fees (if you have them), and any costs necessary for maintaining the home.https://player.vimeo.com/video/617442458?h=1879c701e8&color=105fa8&title=0&byline=0&portrait=0

Reverse Mortgage Requirements and Rules  

Not everyone can take out a reverse mortgage. Before applying, you should know about some basic reverse mortgage requirements.   

In order to obtain and keep a reverse mortgage, the borrowers must agree to the following obligations:  

  • To keep the home in good repair (as defined by the Federal Housing Administration, or FHA)  
  • To pay property taxes   
  • To pay homeowner’s insurance  
  • To live in the property as their primary residence  

Compared to a traditional mortgage, income, employment, or good credit are not required to be approved for a reverse mortgage.   

How to Qualify for a Reverse Mortgage   

In order to qualify for a reverse mortgage, borrowers must meet some very specific requirements:  

  • At least one of the borrowers must be 62 years old or older 
  • The property must be their primary residence 
  • The home must have substantial equity built up 
  • The property must be a single-family residence, an FHA-approved condominium, a townhouse, a manufactured home that meets certain requirements, or a two to four-unit property in which the borrowers occupy one of the units.   
  • The home needs to be in good condition 
  • The borrowers will need to show that they can continue to pay the property taxes, homeowners’ insurance, HOA fees, and maintenance costs.  

If you have questions about whether you qualify, the best way to get all your questions answered is to talk to one of our reverse mortgage specialists by going here.  

Reverse Mortgage Types  

There are three types of reverse mortgages: 

  • Home Equity Conversion Mortgage (HECM). The HECM reverse mortgage is the most common type of reverse mortgage offered by lenders. HECM loans are also federally insured mortgages. These reverse mortgage loans have an FHA lending limit of $1,149,825 for 2024. 
  • Proprietary Reverse Mortgage. Many lenders will also offer proprietary reverse mortgages for those who have homes that are worth more than the FHA lending limit. These are typically jumbo loans that go by unique names. At Mutual of Omaha Mortgage, we offer the HomeSafe Reverse Mortgage, which allows homeowners to borrow up to $4 million.  
  • Single-Purpose Reverse Mortgage. Homeowners obtain single-purpose reverse mortgages through state and local governments. In some cases, these loans are also offered through non-profit organizations. They may only be used for a single purpose that is lender-approved. Typically, a single-purpose reverse mortgage is used toward property taxes, home insurance premiums, home repairs, and renovations.  

Most reverse mortgage lenders will offer the following reverse mortgages:   

  • HECM Reverse Mortgage. This is the standard reverse mortgage product that is insured by the FHA. It pays off the current mortgage and gives homeowners cash as monthly payments, a lump sum, and/or a line of credit.   
  • HECM for Purchase. A HECM for Purchase allows homeowners to use a reverse mortgage to buy a new home. This is a good option for homeowners who are looking to relocate and want the benefits of a reverse mortgage.   
  • Jumbo Reverse Mortgage. If homeowners want or need more cash than what they are able to obtain through a traditional reverse mortgage, another option is a jumbo reverse mortgage.  

An FHA-insured loan protects borrowers if the lender goes out of business or if the home’s value is not enough to cover the loan when it comes time to sell.   

Chapter 2: How to Use a Reverse Mortgage

Now that you know the reverse mortgage basics, find out how much you might be able to get from a reverse mortgage, and what you can use a reverse mortgage for. 

how a reverse mortgage can be used

How Much Money Do You Get from a Reverse Mortgage?  

The reverse mortgage loan amount that you can expect to receive is based on several factors, including:   

  • The home value is based on a current home appraisal   
  • Current interest rates  
  • The age of the borrower(s)  
  • The type of reverse mortgage  

The FHA puts a lending limit on reverse mortgages. The current lending limit for an FHA-insured loan in 2024 is $1,149,825.   

You can borrow beyond the FHA limit through lenders that offer jumbo loans that are not FHA-insured. At Mutual of Omaha Mortgage, this is known as our HomeSafe Reverse Mortgage.  

A HECM calculator may provide homeowners with more specific numbers of what they might receive from a reverse mortgage.     

Want to learn more? Click here to find out more about how much you can get from a reverse mortgage.

What Can a Reverse Mortgage be Used For?  

How the money from a HECM loan is used is entirely up to the homeowner. However, here are some common ways homeowners have used their reverse mortgage proceeds:   

  • Pay off debt
  • Pay monthly bills  
  • Pay medical bills  
  • Create a financial safety net  
  • Make home renovations  
  • Help loved ones
  • Extend retirement assets  
  • Take vacations  

Click here to learn more about what reverse mortgage funds can be used for.

Reverse Mortgage for Purchase 

Qualifying homeowners may also be able to use a reverse mortgage to purchase a new home. This is known as a reverse mortgage for purchase or HECM for purchase. 

While some older homeowners want to retire in place, there is also a large share that wants to relocate in retirement. They may want to upsize, downsize, move to be closer to family, or move to a warmer climate. A HECM for purchase gives them that option without having to take on monthly mortgage payments. 

This is how it works: 

  • The homeowners will sell their current home. 
  • The money they receive from the sale of that home will be used to make a large down payment (typically 50% to 60%) on the new home. 
  • The remaining balance will be financed with a reverse mortgage. 

Can You Use a Reverse Mortgage as a Retirement Tool? 

A reverse mortgage used to be viewed as a financial product to turn to as a last resort, but that is no longer the case. Retirement planning experts are now recommending that older homeowners start looking at adding a reverse mortgage to their retirement portfolios earlier rather than later. 

Here are some reasons to consider adding a reverse mortgage to your retirement portfolio: 

  • Retirees are able to increase their cash flow by eliminating monthly mortgage payments. 
  • A reverse mortgage can serve as a source of funds during an economic downturn so that retirees aren’t accessing their retirement investments when they are at a low. This is especially important now as we are experiencing record inflation.
  • If reverse mortgage borrowers opt to receive their funds as a line of credit, the money can be used to cover unplanned expenses. 

Want to learn more? Click here to learn more about whether or not a reverse mortgage is a good idea.

Chapter 3: Reverse Mortgage Costs and Fees 

Learn all about the costs and fees you can expect to pay as part of a reverse mortgage. 

reverse mortgage costs and fees

What are the Costs, Rates, and Fees of a Reverse Mortgage?  

Interest Rates  

There are two types of interest rates homeowners can expect with a reverse mortgage:   

  • Fixed-rate mortgage. With a fixed-rate reverse mortgage, the interest rate will be the same throughout the life of the loan.   
  • A variable-rate or adjustable-rate mortgage. A variable rate reverse mortgage has a change of up to 2% that happens periodically. However, the rate can never go up more than 5% over the starting rate due to a lifetime cap.   

If a borrower decides to receive the funds from the loan as a lump sum payment, the loan will have a fixed rate.   

If the money is received as monthly payments or a line of credit or some sort of combination of a lump sum, monthly payments, and a line of credit, the loan will have an adjustable rate.   

Reverse mortgage interest rates work differently compared to traditional mortgages. For example, with a regular mortgage, your credit score will impact your interest rate. This is not the case with a reverse mortgage. With a reverse mortgage, your credit score neither affects your interest rate nor your ability to qualify for a reverse mortgage.   

Costs and Fees  

Just like traditional mortgages, reverse mortgages do come with costs and fees. These will vary with each lender, but these are the costs and fees homeowners can expect to pay:   

  • Origination fees. These fees are paid to the lender, and they cannot be more than $6,000.  
  • Closing costs. These costs are typically paid to third-party vendors and include fees for the following purposes: appraisals, recording fees, title searches, credit checks, surveys, mortgage taxes, inspections, and others.   
  • Mortgage insurance premiums. These are charged when the loan is initiated and annually throughout the life of the loan. These charges go to the FHA, and they ensure that the homeowners receive their loan advances. It also helps make up the difference at the end of the loan to make sure the homeowner does not have to pay more than the property value. The annual premium is 0.5% of the loan’s balance.  
  • Servicing fees. These fees are charged by the lender for servicing the loan. These fees cover the costs of sending monthly statements, distributing funds, and ensuring that the loan requirements are met throughout the life of the loan.   

The fees and costs can be paid upfront or can be covered by the loan.   

Homeowners must also continue to pay the costs necessary for maintaining the home, since the title remains in the homeowner’s name. These include property taxes, insurance, utilities, repairs, and anything else necessary to maintain the home.   

Click here to learn more about reverse mortgage costs and fees.

Reverse Mortgage Terms  

Traditional mortgages typically come with 15-to-30-year terms in which borrowers must repay the loan. With a reverse mortgage, there is no set term length.  

Reverse mortgage loans do not have to be repaid until the homeowner leaves the home permanently, whether it’s because he or she decides to sell the home, or the homeowner becomes deceased. 

Chapter 4: Reverse Mortgage Application Process 

Applying for a reverse mortgage is a unique process. In this section, we will cover all the steps you can expect when applying for a reverse mortgage. 

reverse mortgage application process

What is the Reverse Mortgage Application Process?   

The first thing to note about the reverse mortgage application process is that it is not fast. Obtaining the cash from a reverse mortgage can take up to 45 days.   

While the exact process may vary from lender to lender, here’s a general rundown of the reverse mortgage loan process that a borrower can expect: 

  • Step 1: Talk to a reverse mortgage advisor. In this step, homeowners will connect with a reverse mortgage professional for an initial discussion. They may receive an estimate of what they can get with a reverse mortgage. 
  • Step 2: Meet with an independent counselor. This is a required step in order to officially file an application. Homeowners must meet with a third-party HUD-approved counselor who is not associated with the mortgage lender. 
  • Step 3: Submit the application. In this step, the homeowners will complete the application and sign disclosures with the assistance of the reverse mortgage broker. 
  • Step 4: Home appraisal. The home must undergo an appraisal to assess the condition and value of the home. 
  • Step 5: Processing. In this step, the homeowners wait while the loan file is submitted for processing and underwriting. The reverse mortgage broker may come back to the homeowner with questions from the underwriter. 
  • Step 6: Closing. Once the documents are processed and approved, a closing date will be scheduled to sign all necessary documents. 
  • Step 7: Receive funds. After three business days, the funds will be released in the manner the homeowner chose when filing the application: a lump sum, a line of credit, monthly payments, or a combination of the three. 

Right to Cancel  

Homeowners can cancel a reverse mortgage at any time during the application and processing phase without facing penalties. This includes three business days after the closing documents are signed.   

In order to cancel a reverse mortgage, it must be done in writing. The written request must also be sent by certified mail, and a return receipt needs to be requested.   

After the cancellation request is made, the lender must return any money paid by the homeowners within 20 days.   

It is recommended that homeowners keep all relevant documents and communications in case the cancellation is contested. 

Click here to learn more about how to apply for a reverse mortgage.

Chapter 5: Reverse Mortgage Pros and Cons 

In this section, we dive into the pros and cons of a reverse mortgage. Understanding the pros and cons is also key to knowing if the reverse mortgage product is the right choice for you. 

reverse mortgage pros and cons

What are the Pros and Cons of a Reverse Mortgage?  

Before applying for a reverse mortgage, homeowners should thoroughly weigh the pros and cons. Below are some of the pros and cons of a reverse mortgage.  

Pros 

  • Homeowners can retire in place 
  • Homeowners are able to increase their cash flow in retirement 
  • Homeowners are able to eliminate mortgage payments 
  • Homeowners have several options for receiving funds 
  • The reverse mortgage funds can be used at the homeowner’s discretion 
  • Homeowners are able to receive other sources of income in addition to the reverse mortgage 

Cons 

  • Homeowners are unable to leave their homes free and clear to their heirs 
  • Homeowners must continue to pay taxes, insurance, and maintain the home 
  • Reverse mortgages typically come with high fees and closing costs 
  • The balance of the loan increases over time 

Chapter 6: Reverse Mortgage FAQs 

In this section, we cover some common questions homeowners have about reverse mortgages. 

reverse mortgage questions

Are Reverse Mortgage Payments Taxable?  

The money received from a reverse mortgage is not taxable. Because the money received from a reverse mortgage is a “loan advance” and not income, it is not taxed.  

How Do You Pay Off a Reverse Mortgage?  

Unlike traditional mortgages, a reverse mortgage is not paid by making monthly mortgage payments.   

Most reverse mortgages are paid off when the home is sold. The money made from selling the home is used to pay the loan balance.   

Borrowers are allowed to make early payments without penalty if they want, but it is not required.   

Who Owns the Home? 

One common misconception about reverse mortgages is that the bank owns the home, but this is not the case.  

The title continues to remain in the name of the borrower. In addition, the borrowers are still responsible for maintaining the home, paying the property taxes, paying for homeowners insurance, and any other costs such as utility expenses. 

What Happens to a Reverse Mortgage When You Die?  

One of the most common questions about a reverse mortgage is what happens to the reverse mortgage after a homeowner dies. If a homeowner with a reverse mortgage dies before selling the home, the heirs of the estate have two options:  

  • Option One: They can sell the home, repay the loan balance, and keep any of the remaining equity.  
  • Option Two: They can keep the home by repaying the loan, possibly by refinancing it into a new mortgage.  

Because of the reverse mortgage’s non-recourse feature, the homeowners or their heirs will never owe more than 95% of the home’s appraised value, even if the balance of the loan exceeds this amount. This means that if the home appraises for less than the loan balance, 95% of that amount is all that needs to be repaid.  

Are Heirs Responsible for Reverse Mortgage Debt?  

The children or heirs of homeowners with a reverse mortgage are still able to inherit the house in the same way they would with a house with a traditional mortgage.   

The decision that heirs will have to make is how to pay off the reverse mortgage loan. Typically, heirs will sell the home to pay back the lender. Any leftover money will go to the homeowner’s estate.   

Because reverse mortgages have what is known as “non-recourse protection,” heirs will never have to pay the lender more than the value of the home.   

Is a Reverse Mortgage a Scam?  

While a reverse mortgage is a legitimate financial product, unfortunately, there are scammers out there trying to take advantage of eligible homeowners.   

First, it’s good to be aware of some of the common scams out there that homeowners may run into:   

  • VA Scams. Some scammers try to pose as workers for the Department of Veterans Affairs (VA). One way to know this is a scam is that the VA does not offer reverse mortgages. Some mortgage lenders offer special discounts for military members, but this does not mean the VA has any connection with the lender or the loan.   
  • Contractor Scams. Homeowners should avoid contractors who try to pressure them into getting a reverse mortgage to pay for home repairs.   
  • High-pressure sales tactics. Reverse mortgage brokers are there to educate and answer any questions that homeowners may have about HECM loans. Homeowners should avoid brokers that make them feel pressured into taking out the loan as well as how to spend the money, especially if the broker wants the homeowner to put the money into another financial product the broker will benefit from.   

Second, another way to avoid a reverse mortgage scam is to ensure you are working with a reverse mortgage lender who has a good reputation among its customers and unbiased third-party review business review platforms such as the Better Business Bureau.   

Chapter 7: Is a Reverse Mortgage Right for You? 

If you meet all the requirements and you’re starting to see how a reverse mortgage may be the right option for you, the next step is to talk to one of our reverse mortgage specialists. 

people figuring out if a reverse mortgage is the right choice

A reverse mortgage is not the right choice for everyone, but it may be a good option for those who are near or in retirement and find themselves in one or more of the following situations:   

  • You have significant equity in your home, and you want to remain in the home for at least five years. 
  • You don’t have enough retirement savings and need additional retirement income. 
  • You will be able to continue to pay the property taxes, insurance, and other costs necessary for maintaining the home.  
  • You want to have additional funds on hand that you can use toward unplanned expenses.  
  • You are living on a fixed income such as Social Security and need to supplement your income.
  • Your home needs major upgrades or renovations. 
  • You simply want more peace of mind.  

And there may be many other reasons why homeowners may decide to pursue a reverse mortgage. Your reason for wanting a reverse mortgage is unique to you.  

Before making this decision, it is recommended that you talk to your family members and financial advisor.  

#178: Using a reverse mortgage to pay niece’s education costs

BEING A GOOD UNCLE WITHOUT “CRYING UNCLE” ON INCOME PLAN

While many of your friends have been helping fund their grandkids’ education, you have no children of your own. Over the years, though, you’ve provided funding for your niece and nephew’s college costs, since your younger brother, a self-employed widower, has not been in a position to be of significant assistance. Your nephew is now quite well situated job-wise, and his company has a program to help repay his student loans. Your niece, meanwhile, is about to enter a nurse practitioner master’s degree program, and you would like to help her with the six-figure costs without putting your own resources at risk.

Now 66 and retired from your full time corporate position, your plan is to continue doing small business consulting “gigs” as long as you are able.  With your home fully paid for and the house and grounds in generally good repair, your only concern is possible future health setbacks. Your monthly pension, combined with modest portfolio income, has allowed you to channel as much as possible of the part time earnings into a SEP-IRA. Your plan had been to defer claiming Social Security payments until age 70, but, if you draw down your accounts to help your niece, you may need to either begin claiming Social Security now and/or eliminating SEP contributions.

Consider tapping your housing wealth rather than changing your well-thought-out retirement income planning. With a reverse mortgage set up as a line of credit, the equity you’ve built up in your home can serve as a source of funds to help your niece pursue her career goals. Since reverse mortgage withdrawals are considered loan proceeds rather than income, the money will not be taxable, and there will be no need to either accelerate Social Security payments or to reduce SEP contributions, thus leaving your taxable income level unchanged.

A reverse mortgage might allow you to be a good uncle without “crying uncle” when it comes to your own well-thought-out retirement income planning.

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).

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

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

#177: Reverse mortgage as a coordinating link between in an estate plan

A THREE-FOR-ONE APPROACH TO ESTATE, RETIREMENT AND INVESTMENT PLANNING

A recent health scare (fortunately, you have been pronounced fully recovered) has focused your attention on an intensive estate planning review. While you can hardly be described as “super-wealthy”, your three highest value assets are your IRA Rollover account and to pieces of real property — your own primary residence (you hope to continue living at home for the remainder of your days) and a commercial property with a combined recently appraised value of just under $2.5 million.As an early buyer of long term care insurance, you feel confident that your life pension (dating back to the days when defined pension plans were a “thing”); combined with your social security benefits and annual IRA withdrawals, will be more than sufficient to cover your present and future needs. Long divorced, you contemplate naming your granddaughter, (to whom you’ve been making annual cash gifts) as your sole heir, along with one charitable medical research organization that you would like to benefit as part of your legacy.

As part of the very intensive and insightful approach you are taking in planning your affairs, you might discuss with your legal and financial advisors the combining of three “tools”: a reverse mortgage on your residence a Charitable Remainder Unitrust funded with a contribution of your commercial property, and annual qualified charitable distributions out of IRA.

Part One (a CRUT): The ownership of your commercial property would be transferred to the medical research charity you favor, with the stipulation that annual distributions be made to your granddaughter. (These distributions would replace the annual cash gifts you’ve been making to her). Upon your death, the assets in the trust would become the property of the charity, totally eliminating any capital gains tax that might become payable if you decided to sell the property. (This tactic also protects against capital gains taxes should the laws be changed to eliminate the “step-up in basis” (as has been considered).

Part Two: a (HECM) You would take out a reverse mortgage on your residence, set up as a home equity line of credit which you could tap as needed for your own income needs. This reservoir of funds will act as a buffer against the increasing costs of your long term care insurance, as well as covering any major repairs or adaptations needed to allow “aging in place” in your home.  

Part Three: (QCDs) Because you will now be able to supplement your pension and social security income with tax-free withdrawals from home equity, you might, rather than taking your Required Minimum Distributions out of IRA each year, instead make a qualified charitable distribution to charity directly out of your IRA (you are allowed to transfer up to $105,000 a year, while satisfying your RMD requrement.)

Implementing such a “combo” plan is definitely no Do-It-Yourself project; it would involve seeking expert legal advice. You might think of it as a 3-for-1 approach to estate and charitable 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).

#176: Using a reverse mortgage to defer taking early social security benefits

HOUSING WEALTH ALLOWS WAITING TO COLLECT SOCIAL SECURITY

With your relationship ending, you find yourself faced with some daunting financial realities. While you maintained sole ownership of your home (originally purchased together with your now-deceased first wife), it was helpful to have two incomes supporting the ongoing upkeep and maintenance costs. Your soon-to-be ex “roommate” is still working’ you, downsized months earlier from your full time position, have been supplementing the severance pay with a series of temporary work assignments. Your home, fortunately, is fully paid for, but there are some significant looming upkeep costs, including roof repair and a new heating system.Having recently turned 64, you had hoped to continue to defer claiming Social Security benefits for another three years; that may no longer be possible. Meanwhile, both high interest rates and your lack of full time employment render a mortgage refinance impractical.

Consider tapping the equity in your home through a reverse mortgage. While you’ll still need to maintain the home, paying real estate taxes, and insurance, you’ll be able to make tax free withdrawals to fund the needed repair projects. Should you land full time employment, you can choose to make loan repayments.  Any unused portion of your “housing wealth” will be credited with interest at the same rate as that being charged on the loan. The main benefit would be that, by using your own housing wealth, you might be able to cover living costs without “turning on” social security payments before “normal retirement age”.

Turning to your own housing wealth might make financial realities less “daunting”.

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 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

#175: Using a reverse mortgage to defer tapping HSA

REVERSE MORTAGES TO PRESERVE THE POWER IN A POWERHOUSE

At age 66, you plan on working two more years; your wife has plans to retire in a little over a year from today. With your children fairly well established in careers of their own, the two of you have been quite diligent about making maximum contributions to your 401K and Health Savings Account as well as to your spouse’s 403b, even foregoing some luxury spending in favor of adding to your jointly held investment portfolio. With your home fully paid for and well-maintained, you are glad to have been able to benefit from the past year’s stellar stock market performance as you look ahead to retirement.

A recent article in the Indianapolis Business Journal recommending deferring withdrawals from HSA accounts has given you cause to rethink some of your strategies. You had planned, between here and retirement, to finance your share of the costs for both eye surgery and some major dental work by making tax-free HSA withdrawals.  With your wife scheduled for joint replacement surgery two months from now, you were going to tap your HSA account to finance whatever part of those costs are not covered by her insurance plan.

“With triple-tax benefits, the humble HSA (Health Savings Account) emerges as an effective way to save for retirement,” IBJ columnist John Russell reminds readers, urging them to take a longer view, leaving their HSA accounts alone for now, so the investments can continue growing. While your joint tax bracket is undoubtedly higher now than it might be years after you retire (making tax-free withdrawals economical in terms of covering out-of-pocket medical costs in the near term), a more important concern, you now realize, involves ballooning healthcare costs later on. Unlike withdrawals you might make from your own rollover account (from your 401K or from your wife’s 403(b), withdrawals from an HSA will continue to be tax free when used for healthcare expenses in retirement.

You might consider using the equity built up in your home as a resource of for covering near-term healthcare costs, allowing you to defer HSA withdrawal and continue the potential for tax-free asset growth. With a HECM mortgage, you can use housing wealth to finance near term medical costs. With a reverse mortgage set up as a “line of credit”, you can use tax-free withdrawals to cover the costs of your dental care and eye surgery, as well as your wife’s orthopedic treatments. Whatever portion of your home equity is not being used will continue to be credited with growth at the same rate as the interest being charged on the outstanding loan balance. (In an investment overview, the reverse mortgage line of credit would be part of the “loaner” segment of the portfolio, balancing the stock “ownership” segment in your asset allocation plan.)

A reverse mortgage might preserve the power of your “powerhouse” Health Savings Account.

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

#174: Advising financial planning clients on a reverse mortgage

REVERSE MORTAGES AS INVESTMENT PORTFOLIO COMPLEMENTS

Over the past few months, perhaps due to the plethora of TV ads for reverse mortgages, you’ve been receiving a number of inquiries from your financial planning clients about reverse mortgages. With a quarter to one third of your client base now in their sixties and seventies, their home equity represents a significant portion of their wealth.

Still, you are concerned about even discussing, much less promoting, any tactic or product which, in addition to having little potential to add to your own bottom line, represents an area in which you have no specialized training, and which is an area of planning not specifically covered in the compliance rules of your own broker dealer. On the other hand, you want to continue offering comprehensive advice relevant to the changing needs of your clients as they age.

As noted in Financial Advisor Magazine, American College professor Wade Pfau describes two very strong advantages of Home Equity Credit Mortgages taken out early in retirement:: a) “the HECM allows borrowers more comfort with investing other assets in a relatively aggressive manner” and b) “a HECM line of credit can be tapped after down-market years so that retirees aren’t forced to sell other assets at depressed levels to make ends meet”.

Specifically addressing areas of concern you mention: In terms of training and compliance, there are many courses available (both through the Certified Financial Planner Board and the CPA  Academy) on reverse mortgages. You can seek out and recommend experienced reverse mortgage professionals (regulated by the Housing and Urban Development) to help your clients understand their options and make appropriate choices.  In terms of “adding to your own bottom line”, when your clients use their largest asset as an incremental source of income, that allows them to keep more of their financial assets invested.

As a financial advisor, consider of reverse mortgages not as investment “instead-ofs”, but as “complements to” investment portfolio management.

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).

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

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.

173: Using a reverse mortgage to offset portfolio equity with debt

REBALANCE ASSET MIX WITH REVERSE MORTGAGE BALANCE

 A longtime believer in asset allocation in investing, you have been “in charge” of guiding the choices in your wife’s 401K (she is still working), as well as in your own SEP-IRA account (you continue to generate modest income as a self-employed metallurgics consultant), as well as in your jointly owned portfolio.

While 2023 turned out to be an excellent year for stocks, you can’t help but worry about the near future and the effects the world unrest along with upcoming election turmoil might have on stocks, at least in the short term.  You’ve begun to make some shifts in the two qualified accounts, but now realize the top-heavy issue in the jointly owned account is  harder to fix without generating significant taxable gains.

Without in any way attempting to offer either investment of tax planning advice, we’d like to suggest you consider your own housing wealth to be an important element in your asset allocation planning. Assuming that your intention is to continue living in the home for the foreseeing future, you can apply for a HECM reverse mortgage, set up as a line of credit (which would significantly increase the “fixed income” portion of your allocation strategy. (The unused portion of your home equity would be credited with growth at the same rate of interest as that being charged on the portion that represents borrowed funds.)

Consider bypassing the tax ramification of an asset allocation rebalance using a reverse mortgage balance..

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.

#172: How a reverse mortgage relates to the client’s estate plan

REVERSE MORTGAGE DOES NOT REVERSE ESTATE INTENTIONS

After hearing so much about reverse mortgages, the two of you have become interested in exploring that option as a way of establishing a funding source as major updates become urgent on your seventy-year old home. Your big hesitation in moving forward is that, early in 2023, you spent a lot of time and money on finalizing your estate plan, and you do not want to have to redo all your documents.  As part of that plan, upon the second of your deaths, the home is to go to your daughter (the only one of the three children who lives nearby and who does not own a home), with other assets going to the others to “balance out” the inheritance values. If the home were to have a loan against it, you fear that would upset the balance you were trying to achieve.

Establishing a reverse mortgage line of credit would not necessitate a total reworking of your estate plan, and your documents can continue to state that your daughter will inherit ownership of your home. With reverse mortgage loan in place, upon the second of your deaths, your daughter would need to pay off the loan balance in order to keep possession. Were she to decide to sell the home instead, she’d retain any proceeds in excess of the loan balance. On the other hand, in the unlikely event that the home were to be appraised at less than the outstanding mortgage balance, your daughter would not need to pay back any money, because a reverse mortgage is a non-recourse loan.

 One tactic you might consider is to use a portion of your home equity to fund a survivorship (second-to-die) life insurance policy with your daughter named as beneficiary. That would ensure she’d have enough money to pay off the reverse mortgage balance.

Housing wealth is a very viable source of contingency funding for future remodeling needs, and a reverse mortgage need not mean a total “updating” of your carefully thought out estate plan.

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

#171: Using a reverse mortgage to “regularize” retirement income

GETTING CLOSER TO A GOLDILOCKS RETIREMENT WITHDRAWAL PLAN

As a financial advisor, you’ve found, the trickiest aspect of advising clients who come to you at the brink of retirement, is helping them select an appropriate and “safe” system of withdrawals from their investment accounts to support their lifestyle needs. As Morningstar observed in its White Paper on “The State of Retirement Income 2023, many couples seek a “paycheck equivalent” in retirement, aiming to withdraw the same amount every month, (adjusted for inflation) for the duration of their lives.

Often, as an advisor, you spend time explaining to clients that for most retirees, spending patterns hardly turn out to be that regular. In reality, retirees tend to spend most during the beginning years of retirement, with spending leveling off in the middle to later years of retirement, when health concerns often escalate. The right level of withdrawal is going to need ongoing review and discussion. Obviously, a lot depends on variations in the investment markets, and you and your clients need to allow for the “sequence of returns” that has the power to sink or support even the most careful of withdrawal plans.

For clients who not only own their home, but who contemplate continuing to reside in that home for the rest of their lives, part of  your income planning discussion with them might include reverse mortgage funding. “Freeing up” the equity in their home allows their housing wealth to serve as a retirement income “buffer” injects greater elasticity into the income withdrawal calculation.

Set up as a line of credit (with the unused portion being credited with growth at the same rate as the interest being charged on the borrowed funds, the reverse mortgage can add a “client comfort factor that gets clients closer to an “aah-just-right” feeling about their brink-of-retirement income planning. 

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