Posted tagged ‘senior finances’

Reverse Mortgages: The Future?

May 19, 2009

j0433797If you have been one to follow the reverse mortgage industry over the years, you have seen a lot of change. For the first 15 years of the HECM product, there was virtually little change. The product was what the product was. HECM150 was basically what was sold as the main product throughout the country. Today there is change what seems to be every week. With the economic issues that our country is facing, the industry has been required to change.

Dennis Haber an attorney that has focused on the reverse mortgage industry and has been influential within this industry. He has written a couple of blogs that draw attention to the current and pending situation around the reverse mortgage product and is an advocate for the industry. Here, he explains what he calls the Reverse Mortgage Storm, Hurricane 1 & 2:

The Reverse Mortgage Storm, Hurricane 1

The Reverse Mortgage Storm, Hurricane 2

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Balancing the Cost of Reverse Mortgages

May 12, 2009

CB068300It seems that every so often the issue about the cost of reverse mortgages flashes across my computer screen. In every industry there are skeptics about a solid financial product, but the reality remains, users of the product are much better people to ask. For example, if I was to find out if a particular brand of lawn mower is worth the cost, I wouldn’t ask the person who sells the lawn mower. I would ask the people who have had the lawn mower for an extended period of time. Neither would I ask manufacturers of a different lawn mower. Both groups of people would have a potential bias towards that particular lawn mower. I also wouldn’t ask a company that specializes mowing lawns as a service for they may play down lawn mowers as better sell their service.

However, the people that would provide good, unbiased information are the users of that particular lawn mower. Preferably they would be people who have used the lawn mower for a few different seasons. They would know if the lawn mower stands up to the reputation that is out there.

The same has to be said about reverse mortgages. Though it is always a good idea to get information from non-users, it is important to not judge the product by people who have not used the product, or don’t know many people who use the product. It sounds silly, but this is what happens with albeit “professionals.” They have a judgement about reverse mortgages, but they often have not known many people who have taken them out. They sort of clump everybody into one big group as having the same needs and needing the same solution to a problem.

And so, we get input from various levels of professionals who are not in the industry and don’t have a working knowledge of how the product has been used. The overriding issue is the cost. It is funny to hear this because from the many clients who have taken out a reverse mortgage from me over the past 4 years have never come back and said that it was too expensive. The overwhelming majority is that it changed their life. You see, the value of the benefit far exceeded the cost. The cost was a non-issue after they realized the overwhelming benefits.

Lastly, in dealing with the cost, one needs to look at what the costs are for. In this case, a huge part of the cost is what is the driving force behind the program, the FHA Insurance Premium (2% of the appraised value). This protects the lender as well as the borrower from any future liability in the event the balance exceeds the value at the time of sale of the home. This is called “Peace of Mind”. Peace-of-mind is a beautiful thing! What is it worth? You might just want to ask an independent senior who no longer needs to rely on others to make ends meet. It really is a beautiful thing!

So, for everybody who falls into the mode of “Reverse Mortgages are just too expensive,” my suggestion is to ask around to seniors who have benefited from a reverse mortgage. I think you’ll find that most will tell you that the benefits far outweigh the cost.

For another perspective on Reverse Mortgage costs, visit this link.

Funding Long Term Care

April 29, 2009

CB044104It appears that long term care costs continue to increase which is putting a squeeze on those baby boomers who are on the brink of retirement. “Because the costs of long term care insurance and other health related expenditures are rising and the income system is contracting, these latest findings raise major concerns about the retirement security of baby boomers and succeeding generations.” That is the outlook from Alicia H. Munnell, Director of Center for Retirement Research at Boston College.

Options for long term care financing include Long Term Care Insurance, Medicaid, or private pay. And how much does one need in order to cover these expenses? That is a loaded question, but figure a good long term care facility starts at $3,500/month. Private pay as an option could be a spendy one. Medicaid will cover those with few financial assets, but the level of care is minimal, and finding a facility that takes Medicaid can be difficult.

For those who are considering their long term care plan, it would be wise to talk to an expert in the field. Long Term Care Insurance costs vary depending on a lot of factors. If you are concerned about this cost, take a look at how a reverse mortgage may play a role in financing this high cost product. If health history prevents a Long Term Care Insurance policy, then it really does pay to look into the reverse mortgage option. Planning for this type of event is not necessarily a fun thing to do, it may prevent a major headache down the road both for you and your heirs.

For questions about any of these options, please visit my website here. And for a full report on the rising costs of long term care, visit this article.

Reverse Mortgages: Live Pricing

April 22, 2009

j03826741For years prior, reverse mortgages were fairly constant. That is, we were in a fairly stable environment. Today, with the credit crunch that we find ourselves in, the issue is anything but stable. Where home values are a major problem in all parts of the country, and interest rates are at all time lows, the industry is in a position that it hasn’t ever seen. In fact, I just read a blog recently that did a great job of explaining more of the details and how our products are now based on “live pricing” rather than the stable pricing of the past.  Check out this blog entry to better understand how we got to be where we are today: http://reversemortgageloanblog.com/2009/04/21/credit-crisis-alters-reverse-mortgage-rules/#more-625.

Can a Reverse Mortgage Change a Life?

April 11, 2009

CBR001423Over the past four years of doing reverse mortgages it has been one of my routines to keep in touch with my clients. One of the things I tell them is that I am not going away. After the process is completed, my clients still hear from me. I enjoy this as I have developed a trusting relationship throughout the process.

One of my clients, Carol, called me yesterday. It has been a while since we had last talked but I’ve been in contact by mail. The reason I bring her up here is what she said. She said, “Greg, doing the reverse mortgage was the second best thing that I have ever done.” I asked her what the first best thing that she has done. She said that the cruise that she took in the Caribbean two years ago . . . of course, because of the reverse mortgage. She said, “It has literally changed my life!”

This is just one of many conversations that I have had with my clients over the years. But it is the reason why those of us that do this for a living . . . love it! It is one product that puts LIFE back into LIFE!

Who Can You Trust?

August 22, 2008

I am a sports radio fan! Here in Portland, Oregon, we have a sports radio station that runs 24/7. I know, it is not what most of you probably enjoy, but I like it. It gives me updates on the sporting world, and that is an interest that I have.

Every day they have syndicated talk shows. They do have great local stuff, too, but today I was listening to Dan Patrick, a nationally known sports guy. I enjoy his stuff as he is a great interviewer and has a perspective that is entertaining to listen to. Today they had a poll question. The question was “If you knew you would never get caught, would you cheat to win a gold medal?” What a great question to ask the public. As people from all around the country called in, they responded to the question. Last report showed that the online poll shows that 32% voted Yes, while 68% voted No. I am at least pleased that the No’s won out, but weren’t the Yes’s too high. I am a little dissappointed, but not surprised. I actually thought it might be a little closer to 50/50. I am glad I was wrong.

So what is my point? I was told early on that just when you think nobody is watching, somebody is watching. I also have learned that the measure of a man is not what one does in public, but what one does in private, when nobody is watching . . .  when nobody ever knows. Those that are close to us often don’t know the “real” us. The person who knows the “real” us is the bank teller when she has to give you some bad news about your bank account or a loan request. Our character is revealed when we face adversity.

I am not going to get real political here, but I do want to share one thing. In watching the Olympics and how things have been portrayed, it has given me a look into the hearts and minds of the Chinese government. There have been a few things that have caught my attention: 1. Opening Ceremonies Lip Sync – the little girl who we heard was not the one who appeared to be singing, 2. Opening Ceremonies Fire Works – several of the fireworks on TV were not really appearing in China, it was digitized to appear better than it really was, 3. The age of the gynmists – though not confirmed, it appears that some of the gymists were underage (still to be determined). There may be more, but these three things are fresh in my mind. What are the intentions of the Chinese government? Possibly to appear better than they really are? Who are they really? Are perceptions reality? Are the perceptions something we can trust?

I do believe that we all want to be trusted. But the question remains, can we be trusted. If I trust you, will you pull through for me? Will you tell me the truth? Are you on my side, or are you only really looking out for yourself? Will you sleep at night with the information you tell me? Will you stretch the truth? In all reality, whatever we do or say, we will have to live with it the rest of our lives. And everyday, when we face the world and all of the treasures we have amassed, we will have to look at ourselves in the mirror and see either a “fake,” or an “authentic” individual. Is the Truth your friend? I hope so!

In working with seniors, I take it upon my responsibility to be a truth giver. It hurts sometimes to tell someone what they don’t want to hear, but truth always wins out. It always wins out! Is it a coincidence that “Truth” and “Trust” start with the same three letters (I really don’t know). Do they represent the same thing? Many people today walk around telling people they can be trusted. “Trust me,” they say. I simply know that trust is earned through time, and that history is a good indicator of future behaviors. So, I’ll ask you the question, “If you knew you would never get caught, would you cheat to win a gold medal?”

Though it is difficult to really know how we would answer the fictitious question, it is a great question to think about and ponder. Is it Truth that we are after, or do we strive to be percieved as wanting Truth. Good question . . . . Who can you Trust?

My Thoughts about Fixed Rate Reverse Mortgages

March 6, 2008

j0309031.jpgEver since I started offering reverse mortgages about 3 years ago, one of the most common requests were for a fixed rate reverse mortgage. The look on my clients face when I told them that the reverse mortgages were all adjustable made me cringe. “I don’t like adjustable rates,” was a common statement. “They just make me nervous,” says another. I often gave them hope in that a fixed rate reverse mortgage was on the horizon. Well, for a conventional mortgage, adjustable rates can make people nervous. But for reverse mortgages, it really makes a lot of sense given the way that fixed rate reverse mortgages have been set up.

After following the fixed rate reverse mortgage products for several months, it is becoming more and more apparent that it is not the great deal we were all hoping for. Limitations and risks are a big part of this product.

When we take into consideration that the required lump sum draw requirement is often many thousands of dollars, I am not sure it is a wise move. The only way I could see it being beneficial is if: a) there is an investment (low risk) plan that the client has discussed with a financial advisor, 2) the borrower has to bring money to the table in order to close the loan, 3) if the rate gives the borrower a peace-of-mind about their future equity.

If any of the above are not true, then it would take a lot to convince me that it is the right move. If you simply do the calculations you will see what I mean. Interest will accrue much quicker on a $100,000 than on, let’s say, $20,000. If this is done year in and year out, it will eat up the equity at a faster rate . . .  something that we don’t want to see with our clients. However, if that $100,000 has been placed in an appropriate financial product (I stress . . . . with a knowledgeable financial professional that cares about your money more than his/her wallet) that earns tax free interest, etc. then hopefully you will have made up any interest that has accrued on the reverse mortgage. In this type of situation, then it may make sense to consider a fixed rate reverse mortgage.

If the borrower has to bring money to the table at closing, then it certainly makes sense. In this case there is no money to take out in the lump sum, so it doesn’t increase the amount in which interest is accruing on. Secondly, if the client is at all concerned with their equity being consumed, then it makes even more sense.

One last thought that is a concern. The fixed rate, in most cases, cannot be locked until just prior to closing. This allows a bit of risk when the interest rate spikes. For someone that doesn’t like surprises, this makes me nervous for my clients. A small difference in the interest rate may wipe out a good chunk of available cash for the lump sum. For those who are bringing money to the table, it increases the amount they would need to bring . . . .  ugh. I don’t feel good about that at all.

Overall, I really don’t like the fixed rate option. In a small number of cases, it may make sense. But as a rule, be very, very careful!