Archive for October 2007

Is it too good to be true?

October 30, 2007

j0410132.jpgFor many, a reverse mortgage seems too good to be true. We are often taught that if something sounds too good to be true, it probably is. In regards to reverse mortgages, it actually IS true. Now don’t get me wrong, not everybody thinks this, but certainly, a good number of seniors who are in financial difficulties, a reverse mortgage is . . . well . . .  very good and very true!

You see, for many people, simply to be gauranteed that they can “live in their home for as long as they choose” is a huge relief. Think about it, the number one thing seniors fear is their lack of independency as they age. The peace-of-mind in knowing that they will be able to stay in their home for as long as they choose, relieves them of a very big burden.

Independency can mean a lot of things. Being financially independent and physically indepenedent are two real threats that seniors face. A reverse mortgage often allows a senior to remain self reliant without the threat of losing their independency.

I remember talking with an 89 year old man a couple of years ago. He was very sharp and eloquent. He said to me that there are three things that people his age think about: 1) Safety – in knowing his environment that he is living, 2) Security –  in knowing where things are such as the bathroom, telephone, etc. 3) Being able to choose the way they want to live (being independent). For many seniors, the thing that keeps them from their ability to acconplish these three goals, is money. A reverse mortgage allows seniors, in many instances, to have the peace-of-mind to control these three things.

So, is it too good to be true? If it is a matter of remaining independent, it is both Good and True!

What about the Costs?

October 25, 2007

I am often told that the costs of a reverse mortgage are  often what discourage a senior from moving forward with the loan. It is true that the costs are often higher than doing a traditional “forward” loan. But many people don’t understand that it is only true for the FHA reverse mortgages. Granted, people like that FHA stands behind the loan, but there are other options.

I just visited a client last week that is interested in doing a reverse mortgage. The reason . . .  to modernize her home. Now she is looking at needing somewhere around $15k to do the projects. An FHA reverse mortgage (Home Equity Conversion Mortgage or HECM) would cost her roughly $12k. In my mind this doesn’t make sense. To pay $12k in order to get $15k is not a smart move.

However, as I said, there are other options. Most lenders today have proprietary products. These products are usually used for jumbo loans, those homes that exceed the lending limit in their county. Truthfully, they really are mostly used for the $500+ value properties. There are no lending limits on most of these products. These programs require much less closing costs than the HECM’s do, many times over half. The down side to these types of loans is that they lend less (as a percentage) than the HECM’s do. But, for a lot of people, like my example above, they only would like to have roughly $15k available.

These proprietary products are typically Non-recourse loans (very important). This means that the property is the only security for the loan itself. No other assets are required to pay off the mortgage, including no resources from other family members, etc.

For my clients, they will improve their property by modernizing their kitchen, bathrooms and new flooring. By doing this they will increase the value of their property, and likely get much of the costs back in 5-6 years when they may consider selling.

Bare with me. This is something New!

October 24, 2007

I am trying some new things with my blog, so bare with me. I am finding useful tools such as video’s and slideshows. Be sure to tryout one of the new videos. I put a couple on there that have nothing to do with financial issues for seniors, but are just plain “great videos”. Enjoy! The slide show is new so I thought I would give it a shot.

It is Not All Dollars and Cents!

October 18, 2007

Yesterday I met with a local CPA. I appreciated the time that we spent together as CPA’s typically charge their clients for their time. I felt honored to be able to sit down and pick his brain about reverse mortgages. I am a firm believer in teamwork. We all can’t “know” everything. Nor can we assume we know all situations that people experience in life. Everybody’s life has its own story and each of us carry our own dreams and goals, including financial dreams and goals. Thus, to learn from one another and be challenged by one another is the mark of a growing person.

One of the things that I appreciated about my open conversation with my friend, was that he identified the key issue that seniors struggle with as they age. This one issue becomes more and more critical as we all grow older. In fact, this one issue is what drives most financial decisions and one that marketers use to sell their product. That issue is Emotion! Emotion and Peace-of-Mind often override “dollars and cents.” Don’t get me wrong, I am not someone who uses emotion to manipulate, as I consider it unethical and one that many hardcore salesmen in our country use to sell their products. Rather, when seniors see themselves having the opportunity to live their life the way they would choose to live it, it removes a lot of stress and anxiety, and creates positive emotion.

The other side is the emotional connection with their belongings. People in general find it hard to fathom the reality of having to move from the home they have lived in for many years. They often can’t see themselves parting with the things that they closely identify with whether it be animals, furniture, sourroundings, or collector’s items. This emotion is what drives many of their decisions (actually it drives many of our decisions), including financial. In fact, it often is more important to have the emotional peace-of-mind, than to hold on to the dollars and cents. You see, it is not always about dollars and cents!

Are Reverse Mortgages Used for the Affluent?

October 15, 2007

SeniorsI am often asked about who my clients are. It is assumed that my clients are those who would be considered in the “poor” category. Well, this may have been true in the past, but things are changing. Do the affluent ever consider doing reverse mortgages?

I recently read an article about the affluent and reverse mortgages. The largest reverse mortgage was done on a $21 million property. Now this is an exception, but more and more million plus property owners are choosing to go “reverse.” There are some good logical reasons why a reverse mortgage may make sense for the affluent:

1) Expensive Homes are tough to sell

We are in the midst of a crazy lull in the housing market. In talking with several real estate agents, we haven’t seen a time like this in a long while. That is, homes are just very tough to sell. People are waiting for the right time to buy as they wait for sellers to get desparate give them a great deal. Some of the most difficult homes to sell are the more expensive ones. In light of this, seniors who were relying on a large cash payment from the sale of their home may find solice in getting a short term reverse mortgage. There are products that are not so costly, but provide a substantial cash benefit to the homeowner. In essence, the reverse mortgage would be used as a bridge loan to buy time until the market bounces back.

2) Tax Benefits

Many of the affluent have various assets which one could liquidate in order to get access to cash. However, liquidating assets usually implies a negative tax situation. In order to have access to a large sum of cash (for purpose of medical, in home care, spousal care, etc.) the reverse mortgage may be just the right way to go. As mentioned above, there are various products out there that have various costs attached to them.

3) Inheritance Options

Many seniors have property (other than their primary residence) that they plan on using to pass on to their children or grandchildren. Though liquidating these assets would provide immediate cash (and tax consequences), it would not be their first choice. In this instance, a reverse mortgage on the primary residence would allow them to preserve their inheritance plans as well as access the cash needed to accomplish their other goals.

We are past the time when reverse mortgages are only used by the “poor.” Many professionals, including financial advisors and estate planning attorney’s have found them to be useful for the affluent, as well.

Property Tax Hikes for Seniors

October 8, 2007

There are a whole host of reasons one might consider a reverse mortgage. One of the common reasons is to keep up with property taxe increases. Now each state has different programs that are helpful for seniors dealing with property tax increases, but sometimes it is not enough. Especially if the senior homeowners are desiring to stay in their home. Programs include property tax deferral programs and senior discount programs. One needs to carefully review the deferral program as it is very similar to the doing a reverse mortgage. The property taxes are deferred, and a lien is placed against the property until sometime in the future where the lien is paid off at the time it sells. A common discount program is one where the property taxes are highly discounted and the homeowner only pays a fraction of the current tax rate. There are income parameters for each of these programs. Contact the Department of Revenue for the state in which you reside for more detailed information.

I recently have come across a video about a widow who found herself in a tax rate that she could not afford. Watch below: 

Unbiased Information on Reverse Mortgages

October 2, 2007

When people come to me with questions about a reverse mortgage, I respond with what I believe is a non-biased approach. I realize that reverse mortgages are not for every senior. Based on their goals and dreams and future plans, it may or may not be the tool for them. However, it also just might be the right tool for them.

Most people would like to access non-biased data when researching any product or service. With the internet so available today, there are two very good resources that I often refer people to: 1) National Reverse Mortgage Lenders Association (http://www.reversemortgage.org), 2) AARP (http://www.aarp.org/money/revmort/). These two resources provide unbiased written information about the details about reverse mortgages, positive and negative.

The National Reverse Mortgage Lenders Association (NRMLA) is the national voice of the reverse mortgage industry, serving as an educational resource, policy advocate and public affairs center for lenders and related professioals. NRMLA was established in 1997 to enhance the professionalism of the reverse mortgage business. The website has a lot of information that is useful to the consumer.

In addition, AARP has designated a full section of its website to reverse mortgage information. AARP publishes a consumer handbook for those who request it. Call 1-800-209-8085 to request your own copy, or go to the website above and download it (pdf format) to your computer.