An annuity should never be purchased using money from a reverse loan, but in the past there were times when a reverse loan borrower would unwisely do just that and sometimes these vulnerable seniors were (for lack of a less sensitive term) “robbed”.
But what has happened since then to protect seniors from this kind of scam?
In 1987 Congress passed the FHA Insurance and Uniform Lending practices and the FHA insurance bill that would insure Reverse mortgages.
The first reverse mortgage to be insured by FHA was in 1989 and they continue to oversee this program very closely as an added protection to seniors and since that time additional oversight has come from Housing & Economic Recovery Act, HUD, Ginnie Mae, the National Reverse Lenders Association and the Consumer Financial Protection Bureau.
Prior to this time, reverse loans were created and offered by other entities such as insurance companies in exchange for a portion of the equity of the borrower’s home when they passed away and at very high interest rates.
And quite often an annuity was tied to this transaction by obligating the borrower to use the funds from the reverse loan to purchase this insurance product.
Is this an acceptable suggestion for a senior to utilize in their “later” years?
As I mentioned in the previous post, financial advisors are suggesting to their wealthier clients to consider using funds from a Reverse mortgage in lieu of drawing down on their investments. The number one concern of just about everyone, is running out of money and one way to slow that possibility down, is to use a Stand By Reverse loan.
Here is the remainder of the article:
HuffPost: Why Reverse Mortgages Make Sense for Affluent Boomers
Posted by Emily Study On July 8, 2015
“This is not just for the destitute, which is what the perception was for quite a long time,” Fiore told The HuffPost. “That’s when you will start to see the volume increase because people will look at it as a legitimate tool for retirement.”
A shift in reputation has also led to reverse mortgages becoming a bigger part of the financial planning conversation, with advisors embracing the product as a way to hedge against future costs and plan ahead.
“The financial planning community has really adopted the product in a positive way,” Fiore said.
In closing I would like to mention a study from last year called “The 6% Rule VS the 4% Rule in that various scenarios were created, showing how using a Reverse loan could extend the longevity of retirement funds by many years.
The study was written by Gerald Wagner, Ph.D and in the study he found that ” the 4% rule works well with portfolios that are at least 50% invested in equities and then shows how the use of a reverse mortgage can be used to ‘easily create new rules, such as the 6% rule for a 30 year horizon'”.
I am sharing a brief summary of an article that was recently published by CNN about why more financial advisors are reconsidering the FHA loan as an option to extend retirement funds.
Overall, the article is good but it does make a mistake in regards to Closing Costs that I discussed in a previous post.
The Origination fee CAN be as much as $6,000 but depending upon which loan program is used and the interest rate associated with it, the fee drops and in some cases the borrower can receive a credit towards the fee. Reducing the Closing Costs overall.
CNN Money: Reverse Mortgages Poised to Be Mainstream Strategy
Posted By Jason Oliva On May 20, 2014 @ 4:25 pm In News,Retirement,Reverse Mortgage |
“Reverse mortgages, what were once considered options of last resort, are now poised to become a mainstream financial strategy for older adults looking to shore up their retirements, reports CNN Money in a recent article .
Now that reverse mortgages have undergone a variety of program changes, financial services companies are aiming to make these loans more appealing to consumers, with some advisors even touting them as standby credit.
‘“Home equity is key to Americans’ retirement security, so it’s crucial to responsibly offer reverse mortgages,” said Christopher Mayer, a Columbia Business School professor and CEO of Longbridge Financial, in the article.
The article also encourages readers to weigh the costs of reverse mortgages, among other considerations, to determine if these loans are a good fit for one’s own financial situation. ”