Category: Laurie MacNaughton

Reverse mortgage or HELOC?

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage
Laurie MacNaughton © 2020

In years past homeowners routinely turned to traditional equity lines to cover unexpected expenses. However, tightened credit qualifications have put this option out of reach for many older homeowners. Additionally, a traditional line of credit requires homeowners to make a monthly mortgage payment once they withdraw funds – and, in accordance with the terms of many lines of credit, the more funds withdrawn, the higher the monthly mortgage payment becomes.

It’s not new news that a reverse mortgage can serve as safety net during times of financial turbulence. In fact, longstanding research demonstrates that a reverse mortgage can relieve unsustainable drawdowns when retirement funds are under pressure. Some experts actually call a reverse mortgage a “buffer asset” due to the significant role it can play in wealth preservation.

Here are three advantages a reverse mortgage can hold over a traditional line of credit:

The first is that a reverse mortgage is a home equity loan. I could pretty much stop there and you would know more than most. However, it’s an equity loan with a few unique features. Most obviously, a reverse mortgage is not repaid on a monthly basis. Rather, it’s repaid on the back-end, in reverse, once the home is sold. Just like with any other home sale, after the loan is repaid all remaining equity belongs to the homeowner or the heirs.

Second, a reverse mortgage line of credit cannot be called due, canceled, or frozen the way a HELOC can be. A reverse mortgage line of credit is established at the time of closing and it’s there for the homeowners’ use regardless of market conditions. This makes it a powerful hedge against economic turmoil, as the value of the credit line does not decrease even if housing values fall.

Third, the unused balance in a reverse mortgage line of credit actually grows larger over time. This little-known attribute can add significantly to the amount available in the line of credit.

The takeaway is this: a reverse mortgage can lessen pressure on investments and create an asset source outside the investment portfolio. This may give other assets time to recover lost value as markets stabilize.

If you would like to discuss how a reverse mortgage might benefit you or one you love, give me a call. I always love hearing from you.

 

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Let’s talk about the “F” word

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage
Laurie MacNaughton [NMLS ID#506562] © 2020

Forbearance. It’s the hot topic of the day. It may also prove catastrophic for some homeowners who haven’t read the fine print – if they can even find fine print to read.

Social media posts state in emphatic terms, “Congress gives free money!” “Mortgage holiday!” “Don’t pay your rent!” In a time of uncertainty it feels good to think those in charge are all-wise and all-knowing, that they are looking out for us, that they have our best interests in mind. But it is well to remember the saying, “Rumor circles the world while truth is still lacing on its shoes.”

From the outset I want to make clear: if it comes down to feeding your family or making your mortgage payment, feed your family. If you truly must, ask your mortgage servicer for forbearance. Just don’t imagine for one moment your mortgage payment was forgiven, that it disappeared, or that there will be no long-term consequences.

Which leads to my second point. To date there has been little guidance regarding penalties for forbearance. But as a federally-licensed lender I can tell you this: it is highly unlikely there will be no credit implications for missed payments. Some credit blemishes last a very long time, and mortgage lates can dog homeowners’ feet for years to come.

The likeliest forbearance scenario is that if you miss three months’ worth of payments, all four payments will be due in month four. Let’s say your mortgage payment is $2,000, and you engage in a “mortgage holiday” all three months. Now you owe $8,000 in one lump sum, and you’ve just gone back to work. This would be nearly impossible for most Americans under the best of circumstances, let alone current circumstances when many have been unpaid for weeks. I fear, I deeply fear, we are going to see a foreclosure crisis that makes 2009 pale in comparison.

The punchline is this: if you can pay your mortgage, pay your mortgage. If you can only make a partial payment, call your loan servicer to see if they will accept a partial payment. If you truly cannot pay, bear in mind there will be consequences.

One last word to homeowners aged 62 or older: this time may be the right time to look more deeply into a reverse mortgage. An FHA-insured reverse mortgage is far different than most people think. You do retain title, and the home remains yours until you or your heirs sell it. The loan is not repaid on a monthly basis, but rather in reverse on the back end when the home is sold. All retained equity belongs to you or to your heirs.

Because there is never a monthly mortgage payment due, there is nothing to fall behind on when finances are tight. The FHA-insured reverse mortgage is not exotic, nor mysterious, nor even complex. It can, however, be a financial safety net when life becomes unpredictable.

Be well, stay safe, and if you have questions, give me a call. I always love hearing from you.

Shelter in the time of storm

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage
Laurie MacNaughton [NMLS #506562] © 2020

With market uncertainty caused by current events, it can be reflexive to check investments and to wonder if the traditional 4% rule is sustainable. This “rule” refers to longstanding advice that each year 4% can be withdrawn from assets without running out of money. The problem with a volatile market is that 4% of a shrinking asset pool might not provide enough income to meet expenses.

This week I took a call came from a woman I had first spoken with months ago. “We always knew we would do a reverse mortgage,” she said. “We just thought the time wasn’t right. Now our investments are struggling and we need a buffer from the storm.” Indeed – couldn’t we all.

It’s not new news that a reverse mortgage can serve as safety net during market turbulence. In fact, longstanding research demonstrates that a reverse mortgage can relieve unsustainable drawdowns when retirement funds are under pressure. Some experts actually call a reverse mortgage a “buffer asset” due to the significant role it can play in wealth preservation.

Here are three things to remember about a reverse mortgage:

The first is that a reverse mortgage is a home equity loan. I could pretty much stop there and you would know more than most. However, it’s an equity loan with a few unique features. Most obviously, a reverse mortgage is not repaid on a monthly basis. Rather, it’s repaid on the back-end, in reverse, when the home is sold. Just like with any other home sale, once the loan is repaid all remaining equity belongs to the homeowner or the heirs.

Second, a reverse mortgage line of credit cannot be called due, canceled, or frozen. It’s established at the time of closing and it’s there for the homeowners’ use regardless of market conditions. This makes it a powerful hedge against economic turmoil, as the value of the credit line does not decrease even if housing values fall.

Third, the unused balance in a reverse mortgage line of credit actually grows larger over time. This little-known attribute can add significantly to the amount available in the line of credit.

The takeaway is this: a reverse mortgage can lessen pressure on investments and create an asset source outside the investment portfolio. This may give other assets time to recover lost value as markets stabilize.

If you would like to discuss how a reverse mortgage might benefit you or one you love, give me a call. I always love hearing from you.

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I did a reverse mortgage a couple years back. Remind me of the details?

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Laurie MacNaughton, Laurie McNaughton, Property Tax, Reverse Mortgage
Laurie MacNaughton [NMLS ID# 506562] © 2020

Most people, whether they have a so-called “forward” mortgage or a reverse mortgage, can only retain so much about the nitty-gritty details. Factor in the aging process, and certain specifics may get foggier over time. As adult children move into caregiving roles, they often need servicing details regarding a parent’s reverse mortgage.

Here, in a nutshell, are some important things to remember:

  1. Each year the homeowner will receive by mail an Occupancy Certificate, which must be signed, dated, and returned within the time period specified on the certificate. This is federally-mandated, and it’s FHA’s way of making sure the homeowner is still living in the home.
  2. You MUST keep your property taxes paid and your homeowner’s insurance up to date. Many counties offer property tax waiver programs for older homeowners, and you can find out details by calling your county’s Commissioner of the Revenue. With any home – even if you don’t have a mortgage – when it comes to property taxes, “if you pay, you stay; if you don’t, you won’t.” Don’t let the taxes become delinquent before you reach out for help.
  3. Reverse mortgages are not assumable, which means the loan comes due when the last homeowner permanently leaves the home. This includes cases in which the homeowner has moved to alternate housing. If you are the heir, DO NOT run down the clock following the homeowner’s departure from the home. The servicer is required by federal law to give you 10 weeks to reach out regarding your plans for the property; thereafter they must start the process of selling the home.

Here are a few more details on questions I answer at least weekly:

Q: I get a lot of junk mail. How do I know the Annual Occupancy Certificate is legitimate?

A: The Annual Occupancy Certificate will clearly state on its header the following:

  • “Annual Occupancy Certificate” or “Annual Occupancy Certification Form”
  • Your servicer’s logo and contact information
  • The borrower’s (or borrowers’) name/s

Generally speaking, the certificate will be mailed to you on or near the anniversary of your closing.

If you have questions about the form, contact your servicer as soon as possible.

Q: My loved one was healthy when s/he did a reverse mortgage, but now is completely incapacitated. Can I sign the Annual Occupancy Certificate?

A: Yes, if certain conditions are met. Some of the conditions include the following:

  • The homeowner must still live in the home;
  • You must have a Power of Attorney that was signed when the homeowner had capacity to do so;
  • You must be named Agent in the Power of Attorney;
  • You must provide the servicer a copy of your photo ID, such as a state-issued driver’s license;
  • You must have a letter from the homeowner’s doctor, on physician letterhead. This letter must state the following information:
    • When the homeowner signed the Power of Attorney, s/he had capacity to do so;
    • The homeowner no longer has capacity;
    • The nature of the homeowner’s incapacity;
    • The date of diagnosis;
    • The homeowner is not expected to regain capacity.

Contact your servicer as soon as possible for further guidance on this matter.

Q: My spouse and I married after s/he had done a reverse mortgage on the home. Now my spouse has died. Can I stay in the home?

A: It may be possible to stay in the home. HOWEVER, time is of the essence, and you must contact your servicer as soon as possible for further guidance. Per federal guidelines, the servicer must follow a strict timeline following a borrower’s death or permanent departure from the home.

Following are potential options if you wish to stay in the home:

  • You may repay the loan balance;
  • You may refinance the loan using a new traditional loan;
  • You may refinance the loan using a new reverse mortgage, based upon your own age and eligibility.

Again – contact your servicer as soon as possible. Every day you wait to contact the servicer, the fewer options you eventually may have.

If you have questions, give me a call. I always love hearing from you.

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Long term care and reverse mortgage

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage
Laurie MacNaughton © 2019

It’s just a fact: unless we drop dead, many of us will experience significant long-term care costs.

This fact is not lost on most Americans, and it leads us to consider long term care insurance. These policies cover the cost of in-home care or assisted living, typically for a defined number of years.

For some aging homeowners the fear – or risk – is that they will purchase a policy they will never need. And because these policies ain’t cheap, this fear is understandable. However, over the past few years long-term care/life-insurance “hybrid” policies have entered the market. These largely eliminate the financial risk of some older long-term care options.

Here’s how they work: if you don’t end up needing the full payout for your long-term care, the insurance company pays your beneficiary a benefit when you die.

Some policies are paid through monthly or annual payments, while others are paid in one lump sum – one hefty lump sum. But more about that in a minute.

There is a mind-blowing array of options, and as I am not an insurance agent, nor do I carry any insurance licenses, I will not attempt to lay out either the various products or their merits. I do have a list of highly-qualified, local professionals if you’d like to explore your options.

I can, however, definitively say this: increasingly calls come into my office both from homeowners and from homeowners’ financial advisors who are exploring ways to fund long-term care insurance. And more and more frequently they are turning to a reverse mortgage as a means of covering premiums.

Why? It’s simple. A long-term care policy creates a bucket of money that contains many times the dollar amount paid in. But as I mentioned, a policy can be pricey.

A reverse mortgage, which is a home equity loan much like any other, can provide funds for a long-term care policy without saddling the homeowner with a monthly mortgage payment. Because a reverse mortgage is a loan, it will be repaid – but not until the last person on title permanently leaves the home. At that point the heirs either sell the home or repay the debt and keep the home.

Many years ago I mindlessly said to a client, “Getting old is hard.” He replied, “No, getting old is easy. Paying for it is hard.”

Touché. Finances are the hard part.

There is never a one-size-fits-all financial product – including long-term care insurance or a reverse mortgage. Financial needs vary and every homeowner’s circumstances are a bit different.

But this much is certain: none of us is likely to get by on just our Social Security. Few will survive on just an IRA, a 401(k), or pension – or, for that matter, on a reverse mortgage. However, a reverse mortgage often plays a very important role in asset longevity, and when added to other resources can contribute to long-term financial health in the retirement years.

If you would like to discuss your financial needs, or those of a loved one, give me a call. I always love hearing from you.

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Make it easier for those of us who still believe

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Property Tax, Retirement Planning, Reverse Mortgage

Laurie MacNaughton © 2019

I am not much into rebutting the demonstrably incorrect things I read or hear about reverse mortgage. Unless, that is, the source is a mainstream newspaper that really should know better.

I get it: times are hard at the large papers, and what with staff cutbacks, summer vacations, and the ever-popular topic of “reverse-mortgages-are-of-the-devil,” it’s hard to resist a slam piece about reverse mortgages. Even if you have to skew the facts. Even if you ignore widely-available federal code that governs the FHA reverse mortgage program. And even if you’re USA Today and have a reputation to uphold.

I am, of course, referring to this week’s piece entitled, “Seniors were sold a risk-free retirement with reverse mortgages. Now they face foreclosure.”

So extensive are the outright errors in the piece, and so slanted is the coverage, that it’s hard to know where to start. So let me just point out the following: foreclosure for failure to pay property taxes may occur whether a homeowner has a “forward” mortgage, a reverse mortgage, or NO mortgage at all. Taxes are simply a cost of homeownership.

Furthermore, any home with a mortgage also must have homeowner’s insurance. This is not unique to a reverse mortgage; rather, insurance, too, is simply a cost of homeownership. Failure to afford taxes and insurance is not a “failed” reverse mortgage – it’s a failure to afford the costs of homeownership. Don’t get me wrong here: this is not “failure” in some guilt-slinging moral sense; it’s simply a financial assessment.

The article also fails to address what would have become of the low-income homeowners highlighted if they had not received funds from their reverse mortgage. Where were the adult children of these aging parents when the parents were in financial need? It may be the children were financially unable to help – but assuming that to be the case, the children benefitted greatly from having parents remain financially self-sufficient for as long as possible.

But by far the biggest disservice of this piece is its failure to point out that many jurisdictions across the nation have property tax waiver programs for the elderly and disabled. How is it this critically important information was not communicated during the discussion?

I will be the first to say a reverse mortgage is not right for everyone. If you simply cannot afford the costs associated with homeownership, it may indeed be time to sell and look at other housing options. Maybe it’s time to move in with an adult child, to houseshare with a friend, or to move to a less expensive part of the country. But waiting until the taxman is at the door is not…ideal.

As a complete aside here, not long ago I read a Monmouth University poll that stated three out of four Americans believe the press routinely reports fake news. If this is true, I squarely fall in the minority. I generally trust the mainstream news.

Consequently, I will say this: in an era of misinformation and widespread yellow journalism, and amid frequent allegations of “fake news,” never has it been more important for the press to get it right. Shoddy reporting by mainstream media just fuels allegations of a “Lügenpresse,” a lying press. So please, do your homework and just get it right. Make it easier for those of us who still believe.

But back to the topic at hand. No amount of financing – or refinancing – is singlehandedly going to meet the costs associated with aging. In fact, very few will survive on just a bank account, a 401(k), a pension – or on a reverse mortgage. But when added together, all these can contribute to financial health in retirement, particularly when used as part of a sound, long-term retirement plan.

If you have questions about reverse mortgage, give me a call. I always love hearing from you.

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The rope and the cow

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage

Laurie MacNaughton © 2019

Many years ago a friend of mine named Alan, who had spent more than a decade working in Africa, told me this story: a boy came to Alan to say he had found a rope. Alan told him to fetch the rope and when the boy returned, tied to the rope was a cow.

The real issue was the boy had found…a cow.

While none of us may have issues either with ropes or with cows, here’s what we often do have: small problems that are tied to much bigger problems.

This past week I met with a couple who thought they were having cash-flow issues due to in-home health care costs. And here’s the thing: they are having cash-flow issues.

But that’s not all they have. They also have accessibility issues and, perhaps most of all, estate planning issues.

Money was the biggest felt need – it is the rope. The other issues are the cow.

And cows can sneak up on us. In the case of my clients, the wife is 14 years into an MS diagnosis and the husband, until this past year, was her fulltime caregiver. However, he now is undergoing chemotherapy and can no longer adequately care for her. They have legal documents, but they are critically outdated. Case in point: the couple’s Power of Attorney states their son will make medical and legal decisions for them if they become incapacitated. However, 10 years ago he died in a car accident on I-66.

Life is filled with the unexpected. We all know that. We also know no amount of planning will cover all life’s curve balls. But planning goes a long way toward protecting ourselves and those we love best when the unexpected occurs.

As a reverse mortgage specialist I frequently meet with people who are planning ahead for the unexpected, as they understand that long-term illness, a major accident, or the death of one spouse might well put them financial jeopardy. It’s not that my clients haven’t saved; most of them have both savings and investments. Rather, they have done the math and realize that with care costs often running some $10,000 per month, they eventually are going to need every financial resource available.

And here’s why a reverse mortgage can uniquely fit long-range financial plans during retirement: each month a small amount gets added to a reverse mortgage line of credit. This growth compounds over time, and is not based upon home appreciation, but rather upon prevailing interest rates. It’s counterintuitive, but if rates go up, the line of credit actually grows more quickly.

I will be the first to say there is no one-size-fits-all financial product. Financial needs vary and every homeowner’s circumstances are a bit different. So are long-term financial goals.

But this much is certain: none of us is likely to get by on just our Social Security. Few will survive on just an IRA, a 401(k), or pension – or, for that matter, on a reverse mortgage. But when added together, all these can contribute to financial health in retirement, and a reverse mortgage can play a very important role in financial wellness in the retirement years.

If you would like to discuss your financial needs, or those of a loved one, give me a call. I always love hearing from you.

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How the back-end of a reverse mortgage works

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage
Laurie MacNaughton and Neil Sweren © 2019

Within the past few years I lost both my parents and I can attest to this: dealing with estate issues is not fun, no matter how much advanced planning parents have done. This said, the more informed one is, the more smoothly things roll.

For those dealing with a home having a reverse mortgage, there may be questions regarding how the “back-end” works. The answer depends upon whether the property with the reverse mortgage is underwater at the time the last person on title permanently vacates the home.

Selling the home if the house is NOT underwater

If the loan balance is less than the current property value, the sale is handled like any other home sale. There is nothing unusual about paying off a reverse mortgage with one exception: there are certain time constraints the lender MUST follow once the last person on title no longer occupies the home as his/her primary residence.

If the property is not underwater, the buyer’s lender requests a written payoff statement from the reverse mortgage servicer. At closing, the loan balance is paid off – just as would be the case with any other mortgage.  After the loan is paid off, any and all remaining equity goes to the seller, which often is the borrower’s heirs or estate.

Selling the home if the property IS underwater

If the loan balance exceeds the property value the process is a little different.

Reverse mortgage payoffs are not negotiated like other short sales or short payoffs.  The lender must accept as satisfaction of the lien the first offer that is at least 95% of the home’s current appraised value.

Reverse mortgage loans are non-recourse in nature, so the borrower and his/her estate CANNOT be held responsible for any shortfall.  This is true even if the borrower has millions in other assets.  The house repays what it can, and any shortfall is covered by the FHA insurance fund.

It is important to understand this is not a short sale, and that there is no negotiation required or permitted. The lender is prohibited by HUD from accepting less than 95% of the home’s appraised value.

What if the heirs want to keep the home?  

The lender does not care how the reverse mortgage is paid off, only that it is paid off. If the family desires to keep the property, the loan can be satisfied by refinancing or by paying off what’s due.

In an underwater situation, the 95% figure noted above holds true for family members who want to purchase the home: heirs can buy the home for 95% of the appraised property value – which is not the full loan amount.

Important note on time frames

It is important to note there are mandated time constraints placed upon the lender, and the clock starts ticking the day the last surviving borrower no longer occupies the property. Once the home is unoccupied, the borrower or his/her estate have six months to pay off the loan. In addition to the initial six months, up to two three-month extensions can be requested (for a total of one year) if more time is needed.

Extensions are not automatic; documentation that the home is listed for sale, a sale is pending, or that a family member is applying for financing on the home will be required in order for an extension to be granted.

Communication is key

The loan servicer should be contacted immediately once the home is vacant. Reverse mortgage servicers deal with “back-end” situations every day and help borrowers and family members through the process. However, they can’t help if they don’t hear from anyone. All reverse mortgage servicers send monthly loan statements to borrowers. Those statements contain all loan and contact information necessary to make contact with the lender.

If you have questions regarding an FHA-insured reverse mortgage, give me a call. I always love hearing from you.

 

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Staying in our lane until invited into another’s

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage

Laurie MacNaughton © 2019

He has just left my office, this dapper gentleman of 70 with a PhD in Applied Science. But what he said will stay with me for some time to come: “Our society treats aging like it’s some great moral failing.”

I hadn’t ever put it in such elegant or concise terms, but I have seen it too, this pervasive notion that if you’re old, or sick – or, heaven forbid, old and sick – you have done something deeply and morally wrong.

It is far outside my area of proficiency to comment on the complex interactions between mental, physical, and spiritual health. But as one who deals with a health condition, I can comment on how it feels to be the recipient of judgmentalism and unsolicited advice.

It feels like one is being blamed for one’s condition. It feels like one is being told, “If you were to just try harder, you wouldn’t be experiencing this.” It feels like the advice-giver is assuming a position of moral superiority and that you are being implicated in some heinous crime. In other words, it feels bad.

Personally, I choose to assume unasked-for advice comes from a place of concern, and that the advice-giver is wishing to help. But I also understand when the recipient of unsolicited advice snaps, and fires back a retort – I’ve seen it happen.

I’ve also seen the advice-giver do an eyeroll, as though to say, “When you start heeding my advice you’ll finally put this suffering behind you.” And it’s not just physical illness that provokes unsought advice. I have seen the aging subjected to similarly judgmental input.

Without question lifestyle choices factor into wellness, but that’s not the whole story. The rest of the story is people get old; people get sick; bodies break down – maybe not at the same rate, certainly, but it’s just the way the world works.

In the voice of my dapper gentleman, self-deprecating humor and irony were clear. But I thought I heard something else. Weariness with the judginess and self-righteousness that can accompany interactions with the young and the well?

It may be too much to ask that we all agree on all points. But perhaps we can at least adhere to the Golden Rule and its corollary: Do unto others as you would have them do unto you; but also, say unto others what you would have them say unto you.

Or, as others might put it, let us try to stay in our own lane until invited into another’s.

As a reverse mortgage specialist, every day of the week I speak with homeowners who have health concerns, or financial concerns…or health and financial concerns. As frequently as I hear these first-person accounts of the challenges of aging in America, these stories never fail to move me. And then there is the same question: do you think a reverse mortgage might help in our situation?

There is never a one-size-fits-all answer to this question. Financial needs vary. Every couple’s circumstances are a bit different. Timing is important, as are long-term goals.

But this much is certain: with longevity being what it is, none of us is likely to get by on just our Social Security. Few will survive on just an IRA, a 401(k), or pension – or, for that matter, on a reverse mortgage. But when added together, all these can contribute to financial health in retirement.

A reverse mortgage is not a fit for everyone – no one financial product is.

But a reverse mortgage is going to play an important role in many homeowners’ financial wellness in the retirement years, particularly when used as part of a sound, long-term retirement plan.

If you would like to discuss your financial needs, or those of a loved one, give me a call. I always love hearing from you.

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Can we refinance using another reverse mortgage?

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage
Laurie MacNaughton © 2019

“My wife and I took out a reverse mortgage a few years back. Can we refinance using another reverse mortgage?”

It’s a question I get at least a couple times a week, and the answer is…“maybe.”

The reason there is no perfunctory answer is for the much same reason there’s no one-size-fits-all answer when it comes to other home loans: it depends upon the value of the home and upon how much is owed on the loan you currently have.

As I venture into an explanation, a brief word of review becomes necessary.

A reverse mortgage is simply a home equity loan, in many ways like any other home equity loan. The biggest difference is that the loan is not repaid on a monthly basis; rather, the loan typically is repaid in one lump sum on the back-end, in reverse, when the home is sold.

The loans we all grew up with are repaid monthly in a forward direction, and for this reason they are technically called “forward” mortgages. Yup. That’s the real terminology.

With a reverse mortgage the amount a homeowner can borrower is a function of five things: the age of the youngest homeowner; the value of the home; interest rates; current lending limits; and the specific reverse mortgage program one selects.

And here’s where we get back to the question at hand, namely whether homeowners with a reverse mortgage can refinance using another reverse mortgage.

The first calculation is a given – if a couple did a reverse mortgage 5 years ago, they are now…5 years older. The older the homeowners the more they qualify for, so age works in their favor.

The second factor, home value, may also be in their favor, as many of our homes have appreciated nicely over the past few years. This is not a given, of course, and a new home appraisal is always required.

Interest rates have remained fairly stable, even with recent rate hikes, especially when viewed from an historical perspective.

The fourth element, or lending limits, may also be in the homeowners’ favor, as FHA announced higher lending limits in late 2018.

The final factor, namely product type, is currently proving the most interesting. New “flavors” of reverse mortgage have come onto the market, with more due out in 2019, and they are filling a niche long underserved. Homeowners in higher-value homes may benefit from some of these new offerings.

All this said, the determining factor in whether a reverse-to-reverse refinance will work ultimately boils down to how much is owed on the current reverse mortgage. If homeowners qualify for more than is due on their current reverse mortgage, a refinance may be possible.

As an aside, it always bears mentioning: because homeowners retain title to the home – in other words, because they still own the home – property taxes, homeowners insurance, routine maintenance, and other applicable responsibilities such as condo fees or homeowner association dues are still paid by the homeowner. Homeownership is homeownership, and nothing changes in this regard.

If you would like to explore the possibility of refinancing, give me a call. I always love hearing from you.

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