financial stability

Payment Options Using a Reverse Loan

It’s now generally acceptable to use a Reverse loan for retirement planning as they are safer and more regulated than they were in the past and the old negativity has given way to positive attitudes and their use.

Plus the costs have been greatly reduced and now a “non borrowering” spouse has the ability to remain in the property in the event, the older “borrowering” spouse pre-disceases them.   All this is very good news for seniors and the FHA loan program.

All of this has been discussed in the media, but one area that tends to be overlooked are the options that a borrower has in place, as to how they can receive their money.

Most of my clients take funds at the close of Escrow and leave the rest of the money in a Line of Credit.   Not only will these funds increase but they will be available after 12 months have passed since the loan closed and funded.   And then if they wish to withdraw any more funds, they simply request the amount from their loan servicer.

(But more on “that” in another post.)

One of the options would be to take a payment for life, otherwise known as “tenure”.  And, no matter how long the borrower lives or even if they use up all the money that is available to them, that check will keep arriving in their mailbox every, single month.

I’m going to share a lengthy article that talks in more detail about this option.   But it’s going to be in several posts and not all in this one.

No one would read it, because it is too long.

New Research Shows Financial Planning Value of Tenure Reverse Mortgages
Posted ByJason OlivaOn March 3, 2016 @ 7:30 pm In HECM,News,Retirement,Reverse Mortgage

“Reverse mortgages have been the subject of much financial planning research over the past few years, the emphasis of which has focused on how these products add to the value of a retirement income plan. While planners have largely focused their research on the line of credit option, few have explored the effectiveness of the reverse mortgage tenure option in the context of financial planning.

Reverse mortgages provide a means to generate more retirement income than can be obtained from retirement savings alone—and the tenure option does so in a direct way, says a recent report published in the Journal of Personal Finance.”

If you wish to read the entire article, click on the following link.

Journal of Personal Finance





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“Stand By Reverse Mortgage”

In my previous post, I shared part of a summary of an article that was recently published in Advisor Magazine.   The gist of it was, that more Retirement Planners and Advisors need to become educated about the benefits of using a Reverse loan as an overall tool for retirement planning.

Far too often, most people are underfunded in their retirement plans and given that people are living much longer that previous generations, there is a very serious concern of the possibility of running of of funds to live comfortably and pay for any future caregiving if it is needed.

It’s a very good article and I’m happy to see that there is more positive news about the loans, especially since there have been recent changes put into place that make them more affordable and safer than any time in the past.

Here is the remainder of the summary, along with a link in the event anyone wants to read the entire article.
Advisor Magazine: Leverage Housing Wealth with Reverse Mortgages
Posted ByJason OlivaOn February 3, 2016 @ 6:54 pm In HECM,News,Retirement,Reverse Mortgage

“The article describes, for advisers, how reverse mortgages have changed in recent years, including the enhanced protections implemented via the Reverse Mortgage Stabilization Act of 2013, which forbid borrowers from using too much equity too soon.

Giordano also highlights why it is important for financial advisers to reconsider reverse mortgages today, especially in light of the recent Home Equity Conversion Mortgage program changes and the potential benefits that can be realized through the strategic use of a reverse mortgage line of credit.

“If the first impulse is to counsel clients to ‘wait’ until the portfolio is depleted before establishing a HECM Line of Credit, the adviser is giving out-dated advice,” Giordano writes. “Compliance officers who forbid conversations with clients on how a significant asset, the home, can improve retirement outcomes are not meeting appropriate standards of care”.

An Asset Hiding in Plain Sight

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Advisor Magazine

I have found it to be so encouraging in that Financial Advisers and the industry in general are beginning to use a Reverse mortgage as part of retirement planning.

Almost every day, there is another positive article or professional study about the FHA loan and the recent changes to it, that it not only safer, but much more affordable as well.  Plus the benefits of using it as part of a retirement plan.

Advisor Magazine published an article earlier this month, stating why Advisers need to become educated and open to their use in retirement planning for their clients who are near retirement, as a viable method of extending retirement funds.

The number 1 fear that just about everyone has, is running out of money as they age and unfortunately, far too many people are underfunded in their retirement plans and it’s important that Advisors are reasonably knowledgeable about the loan program, so that they may discuss it with their clients.

Having what could be called a “Stand By Reverse Loan” could possibly make a significant difference on how much money will be accessible  for a someone after they retire and possibly reduce the worry of running out of funds to support one’s self.

I’m going to share part of a summary article in this post, with the remainder of it in a follow up post, due to it’s length.   Plus I will also provide a link to the article itself in the event anyone one to read it in it’s entirety.

Advisor Magazine: Leverage Housing Wealth with Reverse Mortgages
Posted ByJason OlivaOn February 3, 2016 @ 6:54 pm In HECM,News,Retirement,Reverse Mortgage

“A slew of research and commentary in recent years have encouraged consumers as well as other financial professionals to take a fresh look at reverse mortgages, following the implementation of program changes such as the Financial Assessment, upfront draw limitations and updates to the non-borrowing spouse policy.

Furthermore, concerns that American retirees will fall woefully short of having enough savings to live on during retirement have also generated a keen interest among financial planners, retirement researchers and even a Nobel Laureate, to analyze how housing wealth could effectively fit into the equation for many retirees, according to the Advisor Magazine article written by reverse mortgage industry veteran Shelley Giordano.

Giordano, who also chairs the Funding Longevity Task Force, a group comprised of distinguished members of the financial planning community, writes that advisers who ignore the recent changes made to reverse mortgages “will fail to appreciate how the prudent use of housing wealth in the distribution phase can contribute to cash flow survival and even improve the overall bequest” for retirees and their heirs.”

An Asset Hiding in Plain Sight

Look for the remainder of the summary in my next post and be sure to contact me if you have any questions.

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Financial Advisors and Reverse Mortgages

After years of bias against the use of a Reverse loan for retirement planning, it seems that  Financial Planners are finally becoming more open minded about them and less hostile about their use.

When I first began my profession as a consultant 14 years ago, I thought that they would be open to the consideration and alternative of using a Reverse loan for some of their clients.   But I was totally incorrect, as I was met with nothing but negativity by the members of NAIFA  (And others in that profession)  in which I was a member of on more than one occasion.

I would attend their meetings and certainly offer my support by paying my dues and being part of their Young Advisors Team  but it was definitely  an “Old Boys Club”, with just a few women members.    Everyone was polite but not interested in what I had to share and needless to say, it was discouraging to be met with nothing but walls….

It was extremely frustrating to  met an Advisor with a smiling demeanor and attempt to engage them in a conversation,  but they barely concealed their negative attitudes when I would introduce myself to them as a Reverse Loan Consultant.

And I have to say, that typically they were always older men.   Set in their way of doing business and they certainly didn’t have the time or interest in anything I had to share that could possibly be a benefit for their clients.

However, I did create a few relationships during that period of time because at the least, they “liked’ me, they just weren’t interested in what I had to share with them, as they had already made up their minds that a Reverse loan was not a good option in any scenario for their clients.

And their negative reaction was  due to the lack of education and understanding about the FHA loan program for seniors.   But it seems that in the last few years, the financial planning industry is beginning to consider their use for retirement planning as an additional and crucial element for their clients.

Their own trade magazine Financial Advisor has published some very positive articles and studies supporting the use of Reverse loans for retirement planning along with “The past year alone saw a plethora of reverse mortgage commentary from the financial planning community, including articles and blog posts on the “new” Home Equity Conversion Mortgage (HECM), as well as research papers published in prominent trade journals such as the Journal of Financial Planning and the Journal of Retirement”.

So after so many frustrating years there has been a shift in attitude and the younger and newer members of this industry, want to learn about Reverse mortgages and how they can extend the life of an existing retirement plan.

A professional “corner has been turned”.   Retirement planners are now receiving the necessary education to help them determine whether or not, using the funds from a Reverse loan is a viable option for their clients as they move into their retirement years.

And personally, I am finding that now when I speak with one, they are sincerely interested and open to the suggestion and ask me questions as well.

What a difference….

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Under Funded Seniors

Every day 10,000 people are turning age 62 and many of them are underfunded for retirement.   As the “Silver Tsunami” of Boomers begin to retire or attempt to retire, they may not have the funds for their later years and this is a serious national concern, about to take care of this aging population in the next ten years.

Financial Advisers after may years of resistance to the idea of using a Reverse loan as part of retirement planning, are beginning to see the wisdom in utilizing this option to extend the longevity of a retirement portfolio.

The Journal of Retirement recently published an article about how using funds from a Reverse loan is an excellent strategy manage and extend retirement funds and provided three examples of individuals and how a Reverse mortgage could give them a retirement advantage.

My previous two posts cover the first sections of the article and this post will provide the remainder of it.

“The Under Funded Client”

“Lastly, there are under-funded clients—those who may need cash flow immediately and may obtain a reverse mortgage as a last resort only after exhausting all of their other resources. This group’s Monte Carlo success rates are low, perhaps 60% or less.

“These clients may have the greatest need for a reverse mortgage,” the authors write. “However, it can be demonstrated, using Monte Carlo simulation, that under-funded retirees with home equity that is equal to, or greater than, their relatively low level of invested assets can gain a tremendous boost from the use of an RMLOC [reverse mortgage line of credit]. The challenge may be to maintain a strong financial discipline and to use the reverse mortgage judiciously to their greatest long-term advantage.”

An important conclusion of the article is that reverse mortgages can help with a retiree’s three basic concerns: enhancing sustainable spending, serving as an emergency fund, and even boosting estate sizes, according to Davison and Turner.

“Overall, the major positive surprise is the value reverse mortgages can add to the lives of retirees, both those who already look forward to a satisfying retirement and those who are not as well prepared financially but will make it through,” Davison and Turner write. “This bodes well for a country with a rapidly expanding and aging retiree population.”’

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Reverse Loan Consultant