Preserving Investment Portfolios
Retirees often have investment portfolios that they rely on to generate income during their retirement. However, market volatility and economic uncertainties can pose risks to these portfolios. A reverse mortgage can help mitigate these risks by providing an additional source of income, allowing retirees to preserve their investment portfolios.
By leveraging the equity in their home, retirees can use the funds from a reverse mortgage to cover their expenses, reducing the reliance on their investment portfolios. This allows them to ride out market downturns without being forced to sell investments at inopportune times. By preserving their investment portfolios, retirees can increase their chances of long-term financial success and maintain their desired lifestyle.
The #1 worry of older Americans is not their health, but outliving their money. Drawing down on investments and savings can be costly due to possible tax complications and possibly running out of funds to meet monthly expenses.
Funds from a reverse loan can possibly eliminate risking losing investments by leaving them in place regardless of market conditions.
A reverse mortgage offers a range of benefits that can empower retirees to maximize their assets and live a comfortable and worry-free life during retirement. From providing financial flexibility and security to helping cover medical expenses and caregiving costs, a reverse mortgage can be a valuable tool in enhancing your financial well-being.
Reverse loans are highly regulated and the senior consumer is well protected from any type of financial abuse and over the last decade many regulations have been put into place which makes a reverse loan a very safe option for seniors to use.
Before anyone can start the loan process, they must complete HUD Counseling with an approved Counseling agency and they can ask questions and discuss their concerns with the counselor.
A list is provided to the potential borrower with a proposal provided by the Loan Officer that offer many counseling agencies for them to chose from.
All fees are disclosed in the proposal, and can be discussed with the Loan Officer. Along with federal regulations and disclosures, each state has their own set as well.
Spouses who are under the minimum age 62 will be able to remain in their home if the older borrowing spouse predeceases them, and no longer have to worry about selling and moving out of their home.
Seniors are worried about out-living their money, and with medical expenses, care giving costs, utilities, food and other monthly expenses, funds from a reverse loan can make life easier and certainly remove the stress and worry about running out of money.
They are a very safe and sensible option on how to use the equity in your home, for funding and preserving your retirement and could be an important part of a financial strategy to make your savings last longer.
It has been a while since I have written anything in my blog, because like everyone else, my life was turned upside down with the pandemic and it’s destructive swath across the world, taking lives, ruining economies, creating fear, anxiety, and uncertainty.
Anyone who had a 401-K, some sort of a retirement plan or at the least, a savings account have seen them dashed, drained away and depleted within days and the Stock Market will continue to reel in uncertainty for most likely, a very long time.
Eventually, we will get through this terrible time, but if you are a senior, you may not have the ability to wait it out until the markets recover and are very worried about running out of money. I am here to say, that this is the one time a senior has an advantage over younger people because they have an option that younger people don’t have.
If a senior age 62 or older, lives in their home (even if they have a mortgage on it), they could apply for a reverse loan. However, too many are afraid of them because they think the Lender will end up owning their home (false), they have to still make payments (false), there is “fine print” to trick them (false) and they are “too good to be true”. (False again.)
- The FHA HECM is the most regulated mortgage in the lending industry, to protect seniors from financial abuse.
- Anyone who wants to apply for a reverse loan must complete telephone counseling with a HUD-approved Counseling Agency.
- There are no mortgage payments, however, the borrower must continue to pay property taxes, Homeowner insurance and keep their home in good repair.
- There are no restrictions on how the borrower uses their funds, except they are discouraged from buying annuities or other investment products.
- They can remain in their home for their entire lives and leave it to their estate.
The reverse loan industry is seeing an increase in loan applications at this time because obviously money from a reverse loan will give them the safety and security they need and take away the fear and anxiety about running out of money.
The loan is safe, well-regulated and an ideal solution for all senior home-owners to consider right now. From the time the HUD Counseling is completed, the loan processing time takes about 45 days, however, it might begin to take longer with the increase in applications.
Although I am located in California, anyone who reads this may contact me if you have questions. I can point you in the right direction for a reverse loan consultant in your state.
Don’t hesitate. If you have a home or Condo and you are old enough, you have this opportunity for financial security. Look into a reverse mortgage. Now.
Like any other mortgage, there may be a time when it’s optimal to refinance a reverse loan due to a drop in interest rates, increased home value or that the borrower is several years older than when they did their original reverse mortgage.
As of this posting, interest rates have decreased and many reverse loan borrowers are being solicited to refinance their current loan into a new one, however, there are some guidelines that have to be followed and not every borrower will pass them.
There has to be a tangible benefit to the homeowner to refinance their reverse loan and at the same time protect them from being taken advantage of and being charged unnecessary fees.
Regulations are in place to protect seniors from being taken advantage of and this has resulted in 3 “tests” to determine whether or not it would be beneficial for the borrower to refinance their current loan into a new one.
The borrower must pass 2 out of the 3 tests to be considered eligible to refinance their existing mortgage and if they do, they can apply for the new mortgage.
There is a”seasoning’ requirement and this means the loan has been in place for not less than 18 months from the time it was originated, funded and closed. Otherwise, the borrower will have to wait, although there are some exceptions to this, that could be discussed in an additional post.
- Closing Cost Test. The increase in available loan proceeds must exceed five (5) times the total closing costs amount This is the “benefit factor.”
2. Loan Proceeds Test. For any reverse mortgage refinancing the available Benefit Amount from the new HECM is the amount of the Principal Limit available to the borrower MINUS the HECM loan balance being paid off and the Closing Costs for the new mortgage. This must equal or exceed 5% of the HECM Refinance Principal Limit.
3. Rate Reduction Benefit Test. The borrower must recover the total costs of the new loan through savings in the annual interest rate charged on the new loan within 4 years.
Confused? Of course and the only way a borrower can find out if they would qualify for a refinance would be to provide a complete copy of their most recent mortgage statement to a reverse loan professional and have them do the calculations for you.
Over the years I have refinanced many of my former clients, but they all have to pass the tests and most of the time they do. If they wish to refinance into a Jumbo/Proprietary reverse loan, that can be done too, and the qualifying tests are very similar.
When in doubt, call your loan professional and ask them. It might be a benefit to you at this time while the interest rates are so low and you might be entitled to more of your equity and increased cash flow.