Tag: Refinance

I know a lady

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story

Laurie MacNaughton © 2022

There it was again today.

“You do reverse mortgages? I know a lady who had a reverse mortgage and lost her home.”

“I know a lady….” If I have heard this once, I have heard it a hundred times.

And you know what? Never do I ever doubt these stories. Never.

But you know what else? Two things can be true at the same time. The lady had a reverse mortgage? The lady lost her home? Both things may very well have been true. However, that does not mean the one caused the other.

Odds are high–in fact very high–that the lady in question forgot to pay her property taxes. But no one is going to ask that, right? It’s rude.

But you know who does ask? The FHA. In fact, the FHA keeps minute tabs on reverse mortgages, including data on the small number of homeowners who have lost a home. Top of the list? Homeowners who default on their property taxes.

Property taxes are not a function of a reverse mortgage. Nor are they a function of a traditional mortgage. Rather, property taxes are simply a responsibility of homeownership. Punto.

But that’s not an interesting story. “Elderly homeowner forgot to pay property taxes and lost her home.” No clickbait there.

“Elderly homeowner with reverse mortgage loses her home,” on the other hand, stirs righteous anger in our hearts. It smells of elder financial abuse, shysterism, and shameless exploitation.

But here’s where the true shame lies: most tax jurisdictions offer tax reductions–or even full tax waivers–for the elderly. Why is this information not made more widely available to our aging?

For those still paying taxes, most jurisdictions allow taxes to be set up as automatic, recurring payments. For some of our oldest homeowners, this may mean they need a helping hand setting up recurring payments. My own father, a truly brilliant aerospace engineer, never did master the personal computer. My mother was quite good on the computer, but she wasn’t in charge of finances.

If you have aging loved ones in your life, ask them if they would appreciate help setting up recurring property tax payments. Be mindful that the ability to keep track of dates, deadlines, and requirements may diminish as loved ones age, and that the “money talk” may be one you need to have on a regular basis.

If you would like more information on the role a reverse mortgage can play in your long-range financial planning, or in the life of one you love, give me a call. I always love hearing from you.

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.

 

Business card for media

 

 

Too good to be true?

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story

Laurie MacNaughton © 2019

The conversation often progresses along a similar path: first skepticism of reverse mortgages, to comprehension, to the following statement, “This sounds too good to be true.”

I get this progression, as I myself walked this precise path when I first learned about reverse mortgages.

There are a few seemingly “too-good-to-be-true” elements of FHA-insured reverse mortgages, the first of which is its mode of repayment: this is a home equity line-of-credit that doesn’t saddle homeowners with a monthly mortgage payment. Rather, the loan is repaid on the back-end, in reverse, when the last homeowner permanently vacates the property. There is simply no other home equity loan that does that.

But another feature of a reverse mortgage is much less well-known, and is the following: the unused balance in the line of credit grows over time, much the same way money in a high-interest savings account grows over time. However, unlike monies in a savings account, the compounding growth on a reverse mortgage line of credit is not taxable. This growth, along with the principal, is there for the homeowners to use as needs arise.

And this growth can be substantial – at today’s rates and terms, homeowners starting off with some $90,000 in their line of credit might expect to have some $165,000 in ten years. This means that if the homeowners were to do a reverse mortgage before they need the funds, and were to let the line of credit grow for 10 years, by the time they start accessing the monies there would be far more available to them than there had been at the outset. And, as I mentioned, this growth is always tax free.

Several misconceptions often surround reverse mortgages, including the question of who owns the home. The answer, without any caveats, is “the homeowner.” End of story. The second question often is whether the homeowners, the heirs, or the estate, can end up owing the lender if the home were to decrease in value. Again without any caveats, the answer is “no.” And a third question I am often asked is whether there is a prepayment penalty if the homeowner moves. Nope, never – there is never any kind of prepayment penalty.

As an aside, I once went to someone’s reverse mortgage seminar, and the speaker said, “Reverse mortgages are a miracle.” Maybe I have a higher bar for miracles. Or maybe, as a reverse mortgage specialist, I take exception to silly statements like that. Reverse mortgages are not a miracle. But they’re also not a mystery; they’re just a mortgage – a mortgage with some amazing features, it’s true, but just a mortgage, in most regards just like any other mortgage we all grew up with.

There is never a one-size-fits-all financial product, as financial needs vary and every homeowner’s circumstances are a bit different. So are long-term financial 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, 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.


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.

President's Club Business Card - Updated Picture

No Crystal Ball

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 © 2018

“My mother’s home was paid off, and at the time we thought a home equity line was going to be the best way for her to pay medical bills. But at this point she’s 87 and the monthly payment is crushing her. Looking back, what we really needed was a crystal ball.”

If you have an older adult in your life, you’ve heard a similar story a hundred times.

No honest lender is ever going to tell you a reverse mortgage is a universally good fit: there are older homeowners for whom the time has come to sell their home and transition into other housing. Some are better served by doing a traditional home equity line of credit (also called a “forward” line of credit). And there are those who benefit from drawing down their investments.

But for homeowners who wish to stay at home and plan to leave their managed retirement accounts untouched as long as possible, or for those with Medicaid considerations, a reverse mortgage may be the perfect fit.

If you would like more information on how a reverse mortgage might help your loved one with financial needs in the retirement years, give me a call. I always love hearing from you.

President's Club Business Card - Updated Picture

In defense of equity consumption

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage
By Laurie MacNaughton [NMLS ID #506562], as first published in Reverse Review, Oct 2017 edition. Reprinted with permission.

To be honest, the seminar topic was probate. But the two opening questions took my thoughts far afield.

“How many here want to leave their kids an inheritance?” Nearly every hand went up.

“How many here are likely to have an inheritance to leave?” Not as many hands went up. In fact, not many hands went up, period.

I sat through the Circuit Court judge’s talk scribbling down my churning thoughts, the foremost of which was this: not leaving kids an inheritance is one thing; having your kids bankroll you as you age is another thing altogether. If you’re the adult child of aging parents, zero inheritance can look great vis-à-vis the potential alternatives.

According to a Pew Research study, more than forty percent of adult children with a parent aged 65 or older helped that parent financially within the past year. If percentages remain constant, the number of adult children bankrolling parents is likely to get worse, a lot worse, because in little more than a decade one in five Americans will be 65 or older.

For many people, the go-to objection to a reverse mortgage is that the homeowner might not have equity left to leave the kids. But this is flawed reasoning.

If a homeowner with a reverse mortgage used all available funds, it is likely there were not other assets to draw from. This means each tax-free dollar the parent used did not come out of the kids’ post-tax income.

An alternate scenario is that the parent did indeed have other assets but did not want to consume those assets, which presumably will go to the kids. Under either scenario the kids are the big beneficiaries – every dollar of her own money Mom used was a dollar either the kids or the taxpayer did not pay out.

Of course, little or no remaining equity is by no means a foregone conclusion, particularly in light of FHA’s most recent changes to the product. But is it true there might not be equity left for the kids? Absolutely. The pertinent issue here is that the parent relieved the adult children from draining their own financial reserves – or at very least, delayed the time when the kids had to step in to help financially. And as boomers’ kids eventually edge toward their own retirement and the reduction in Social Security benefits impacts Millennials’ long-term financial plans, parents’ decisions are bound to become ever more conspicuous.

On a related note, for years I’ve thought it frankly odd how slow some financial professionals have been to amend their mindset about tapping into home equity, even as evidence mounts that homeowners with reverse mortgages tend to enjoy greater odds of financial survivability in retirement. If the popular press is to be believed, the needle does seem to be edging in the right direction, however.

Case in point: recently I met with a wealth manager who said to me, “Our holistic retirement planning includes reverse mortgages.” Moments later he went on to say, “Most of our clients want to leave their investments for their kids.”

Bingo. He has seen how a reverse mortgage can fit into the goal of leaving something for the kids.

This growing awareness is heartening news all around: as aging homeowners get more informed input on reverse mortgages, their adult children, the taxpayer, and the homeowner all stand to remain financially healthier in retirement.

Good news couldn’t come at a better time.

 

President's Club Business Card - Updated Picture

 

Virginia’s Livable Home Tax Credit Program

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story

Did your parents want to leave their home when they retired? Do you wish to leave yours?

If you do, you are overwhelmingly in the minority: fully 95% of people polled state they wish to age in place. But what if the layout of the home just doesn’t work?

Tax Incentives for Improving Accessibility in the Home

For individuals with accessibility issues in the home, Virginia’s Livable Home Tax Credit (“LHTC”) program provides financial incentives for improving accessibility in residential housing. The credit applies to the purchase of a home or to the retrofit of a current home.

Tax credits up to $5,000 are available for the purchase or construction of an accessible residence, or up to 50 percent of the cost of retrofitting an existing home, not to exceed $5,000. If the tax credit exceeds the eligible individual’s tax liability, the credit may be carried forward for up to seven years.

It is important to note: applications must be filed with the Virginia Department of Housing and Community Development (DHCD) by February 28, 2013 for a purchase or retrofit completed in 2012.

For more information visit the DHCD website at www.dhcd.virginia.gov/LHTC

Laurie

Laurie Denker MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

Reversing Years’ Worth of Skepticism

by middleburgreverselady, posted in FHA HECM, Retirement Planning, Reverse Mortgage

Even if they don’t adhere to it, most people have at least heard of the “bucket” strategy of saving for retirement. Basically, it’s a method of asset allocation, a way to diversify investments and save for the day you’re no longer working full time.

But here’s a question you might not know the answer to: for most people, what is the biggest – and best funded – bucket?  Cash equivalents? Fixed-income securities? Pension?

Answer: No, no, and no. For most people, the single biggest “investment bucket” is their home.

You can think about it this way: you might have designated several buckets. But if you didn’t put sufficient money into them during the working years, those buckets are not going to get you through retirement. However, most Americans paid into their home, even during the past few years when times were tough.

But here’s the problem: after spending years pouring the first fruits of one’s income into the home, that money is frozen, tied up in an illiquid asset. It’s an investment, certainly. But it’s not one easily converted into an income stream for retirement.

Increasingly, however, drawing upon that bucket by means of an FHA reverse mortgage is being recommended as a way to meet seniors’ financial needs during retirement.

FHA reverse mortgages have been around since 1988. But until recently, the financial planning community viewed them as the dirty underbelly of financial products.  It was the rare financial planner who saw any legitimate use for them whatsoever, let alone who used them in a strategic way.

However, within the past few years scores of scholarly studies have shown both the near-term and long-term positive impact of reverse on standard of living, financial portfolios, and estates.

In “How Important Is Asset Allocation To Financial Security in Retirement?” authors Munnell, Orlova, and Webb with Center for Retirement Research at Boston College state:

…[F]inancial advice…tends to focus on financial assets, applying tools that give prominence to the asset allocation decision. But most people have little financial wealth, and financial tools are often silent on the levers that will have a much larger effect on retirement security for the majority of Americans. These levers include delaying retirement, tapping housing equity through a reverse mortgage, and controlling spending [emphasis added].

Of particular interest to many financial planners is that, when set up as a monthly payment option, a reverse mortgage basically annuitizes the home – and it’s a considerably bigger annuity than most people would have been able to establish in the years they were supporting their family, helping with college tuitions…and paying their mortgage.

Rick Gow, wealth manager with the independent investment firm Lara, Shull, and May in Falls Church, Virginia, cites the example of a 66-year-old with a house valued at $400,000.

After subtracting closing costs, the retiree could receive a tax-free, monthly check of $1,252 for as long as the home remains the primary residence. By the time the homeowner turns 85, disbursements would total more than $289,100; by age 95, the total payouts would be over $435,600.

If the homeowner were to take a onetime, lump sum payout, he or she would receive approximately $256,800.  A third option would set aside that amount in a line of credit, the balance of which grows over time, tax free.

There is also a newer, reduced fee FHA reverse mortgage, called the HECM Saver. The over-all payout is less with this option, but Gow points out the lower closing costs make it a good option for some.

The majority of Americans fear running out of money in retirement more than they fear death, according to a May, 2012 AARP bulletin. In an America where 10,000 boomers a day turn 62, the FHA reverse mortgage has an increasingly pivotal role to play in retirement planning.

I always love hearing from you. Call me at any time with questions.

Laurie

Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

Babies Don’t Have Dumb Ideas

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story

When my daughters were teenagers I often said the biggest difference between teens and babies is that babies don’t have dumb ideas yet.

But both teens and babies have this in common: just a couple years later, both are more capable, more independent, and better able to care for themselves.

It’s tough to acknowledge, but I now have to add my mother to the comparison.

My mother is probably the most gifted person I know: brilliant, beautiful, funny, well read, extensively traveled, graceful and poised.

But she is getting old, and her proficiency in daily tasks is falling away at a relentless pace. And, unlike either babies or teens, a couple more years is not going to make the issue any better.

NPR Morning Edition’s Jessica Smith, in “Baby Boomer Money Squeeze Worsens, Multi-Gen Households Rise” (June 6, 2012), writes,

Roughly 78 million baby boomers are moving into their retirement years now. At first, they will be the “young” old. Legions of retired boomers soon will be walking around the mall, volunteering with community groups and taking grandchildren on trips.

At first, that can be good for the economy. But this immense generation, born between 1946 and 1964, will keep aging. Based on current medical outcomes, most of the people who live beyond age 85 will end up with dementia or other disabilities that require costly care.

Here’s how fast the numbers will ratchet up: In 1990, only about 3 million Americans were over the age of 85. Today, the figure is 6 million. By 2050, the United States will be home to about 19 million people older than 85, according to U.S. Census projections.(http://www.npr.org/2012/06/05/154001412/baby-boom-money-squeeze-is-set-to-get-tighter)

Almost 20 percent of advanced elderly Americans now live with their aging adult children, putting tremendous pressure on “leading edge” boomers who are hitting traditional retirement age. Boomers tended to have fewer children, later in life, which in some cases has resulted in their still having dependents at home at a time previous generations would have been saving intensively for retirement. Additionally, many middle-aged parents find themselves helping grown children who have lost jobs, homes, and businesses – the classic “sandwich generation” squeeze, made more intense by a prolonged recession.

We are a becoming a nation of the old and the older, the squeezed and the very squeezed.

Writes Ms. Smith, “For individuals, families, local government officials and federal taxpayers, this demographic shift will drain dollars and attention, and force extremely difficult decisions about living arrangements, as well as end-of-life care.”

When we have these talks about taxes and government, what kind of numbers are we talking about?  The primary number to watch is the national debt: in 1970, when boomers were young, the national debt ran about 28 percent of gross domestic product. It now stands at 70 percent.

And, as in the case of my mother, a couple more years is not going to make this issue any better.

According to Centers for Medicare and Medicaid Services, Medicare will remain solvent until 2024. Starting last year, Social Security already began paying out more than it takes in.

As former U.S. Comptroller General David Walker, a federal spending expert says, “Government has grown too big, promised too much and waited too long to restructure. It is going to spend less over time … which means that individuals will have to plan, save and invest for the future.”

Plan, save, invest…and take out a reverse mortgage, according to research put out by Boston College in May, 2012.

….but more in my next piece about several watershed reverse mortgage articles published this spring by major research institutions.

Laurie

         Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank ·                   20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

FHA Weighs Rule Reversal, Boon for Condo Sales?

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story
Daily Real Estate News | Tuesday, May 22, 2012

The Federal Housing Administration is reportedly considering revising rules that many in the real estate industry have called overly strict and that have left many condo units ineligible for FHA’s low-downpayment mortgages.

For example, one sticking point under the FHA’s rules has been that “individual condo units cannot be sold to buyers using FHA-insured mortgages unless the property as a whole has been approved for financing,” The Wall Street Journal reports. However, condo association boards are increasingly opting not to obtain recertification of their buildings for FHA loans due to its tightened regulations against condo units.

FHA’s regulations “have had an enormous impact on individuals,” says Moe Veissi, president of the National Association of REALTORS®. More condo unit residents are finding they are unable to sell their unit because the condo board hasn’t obtained approval from FHA, Veissi told The Wall Street Journal. This then can have a roll-over affect that negatively impacts the price of condo units in the buildings then.

Half of all condo buyers tend to use FHA mortgages, and it’s an important source of lending for first-time and minority home buyers, Christopher L. Gardner, managing member of FHA Pros, a consulting firm that helps condo boards obtain FHA approvals, told The Wall Street Journal.

FHA officials say they are willing to reconsider some of their rules that have raised such an outcry among condo owners, lenders, and real estate professionals. For example, one rule the FHA is reportedly reconsidering is its stance on non-owner occupancy. As of now, FHA requires that no more than 50 percent of the units in a condo building be non-owner occupies. “This rule alone has made large numbers of condominiums in hard-hit markets ineligible for FHA financing, where investors have purchased units for cash to turn into rentals,” The Wall Street Journal reports.

FHA also is reportedly revisiting its condo rules on how many owners in a building can be delinquent on their fees. As of now, FHA refuses to approve a project if more than 15 percent of the condo units are 30 days or more late on their condo association fees, The Wall Street Journal reports.

Source: “Condo Sales May Become Easier if FHA Revises Rules Governing Mortgages,” The Wall Street Journal (May 18, 2012)