Reverse Mortgage Loan Videos
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Emotion Vs Logic

The interesting thing is that when people make financial decisions, they often make them emotionally even though numbers are very logical. Two plus two always equals four, yet emotion comes into play in almost every financial decision. I’ve never seen a situation that has evoked more emotion than a reverse mortgage loan. People come up with all kinds of nasty words about them. Like they’re the loan of last resort. They’re something that preys on the elderly.   They’re something that is awful.   They are bad; they cause people to lose their home to foreclosure.  All of these different things that typify that reverse mortgage loans are something to stay away from and something to be afraid of. So most people come to the conclusion that reverse mortgages are something to be avoided at all costs. They are something to be used at the end, when people are broke when they have no choice. When the piggy bank is broken, and the last garage sale is done, that is when we should get a reverse mortgage. That’s the emotion that comes out. But the fact is that logic, research and facts tell a very different story.    

So let’s look at the facts. There has been lots of research, lots of work done by people much smarter than myself, and anyone that I know. A Nobel Prize-winning economist, PhDs, and MBAs in Universities that have done extensive studies such as Texas Tech University, University of Wisconsin Superior, Boston College, and the American College in Branmore, PA, where many financial advisors obtain their designations.  The bottom line is that all of the studies that have been done at these colleges, and by many of these very smart people that have no vested interest in the reverse mortgage product, have found that the best time to get a reverse mortgage is very early in retirement, at age 62. Not 82, not 92, but right at the beginning. And they did this by looking at it logically*.

Sources: Standby Reverse Mortgages A Risk Management Tool for Retirement by John Salter, Ph.D., CFP®, AIFA®; Shaun Pfeiffer; and Harold Evensky, CFP®, AIF®;  The 6.0 Percent Rule,  by Gerald C Wager, Ph.D. ; Understanding the Line of Credit Growth for a Reverse Mortgage, by Wade D. Pfau, Ph.D., CFA   

There are 3 buckets of wealth; their income and nest egg, their retirement money, and their home. When their home was tapped into the situation right in the beginning, at age 62, and there was some income taken out of the home, three very important things happened. The first thing is that their cash flow increased. They had more money in retirement to enjoy retirement the way they expected to. Along with that situation, with the increased cash flow, the taxes paid on their income tax returns usually went down, and they did not spend as much in taxes because of the strategic withdrawals that they made with IRAs*.  Most importantly, their portfolio longevity - the length of time that people’s money lasted - went up because of the fact that they were able to use more money from their house before depleting all the money from their retirement accounts.   The last thing was perhaps the most surprising, and the most interesting.   People with a reverse mortgage ended up with a higher net worth, not a lower net worth, when they took reverse mortgage money at the beginning of retirement, rather than at the end.  Of course, the reason that happened is that they used less of their investment accounts and more of their home equity.

Let’s talk about the people who already have reverse mortgages -  those are the people that are the most satisfied. In my personal experience with 1,000+ borrowers over the last decade or so, not one of them has been unhappy with their reverse mortgage. They only wish they would have gotten it earlier. The bottom line is that when we look at all the emotions that surround reverse mortgages, and the things that have been published and supported by independent studies, independent magazine articles, and independent financial journals, you will find the benefits of reverse mortgages overwhelmingly more significant than the risks or the costs.

So take a look into it. Have an open mind, and when you talk to one of our reverse mortgage planners, just set your emotions aside for a second.  Set aside some of the things that you might have heard from your relatives, or people at work, or maybe an uneducated or uninformed professional. Then take a look at the facts, and things that have happened to make a true difference.  Retirement can be done in a very different way with Fairway Independent Mortgage Corporation. Ask a local Reverse Mortgage Planner for more information about how a reverse mortgage loan works, we would be happy to be your reverse mortgage lender. 

Ready to learn more?   Contact us today!

Video by: Harlan Accola Reverse Mortgage Director, NMLS#277693 with Fairway Independent Mortgage Corporation.

*This advertisement is not tax or financial advice. You should consult a tax and/or financial advisor for your specific situation.  

 

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Long Term Care

We try to anticipate all kinds of things that could happen; car accidents, house fires, illness or disability, etc.  But most people don’t think about or plan for the fact that 70%* of us are going to have to worry about the cost of long term care at some point before we pass away. 

 

 

There are 4 very important questions that you will have to answer as soon as something happens to you such as a broken arm or leg, a stroke or something else that might be debilitating and would cause a need for long term care.

  1. The first question asked would be “Who would be your care giver?” Most people think “my family will take care of me.” That’s not always a quick and easy solution.  Does your family live nearby or hours/states away?  Are they employed and if so, do they have enough vacation time to handle your needs? It also doesn’t mean that your family will be available immediately when you need them.  
  2. The second question is “Where do you want to receive your care?” Most people want to receive care at home. I’ve never run into anybody that said I can’t wait to get into a nursing home. That’s really not the goal. They want their care at home, and that’s something related to your ability to pay for it. 
  3. The third question is “How are you going to pay for your care?” Money & finances are always involved when we need to pay someone to take care of us. 
  4. The fourth question is “How will this situation affect your family”?

All four of these questions are critical issues that must be answered when a long term care event occurs.

In regard to the third question, “How are you going to pay for it?” There are only four ways to pay for long term care insurance.

  1. Income & Assets: Are you working and/or do you have savings or investments to cover this cost?
  2. Government: Medicare is a health insurance program and doesn’t cover long term care. (LTC)  Medicaid is an income based program designed for low-income people .  VA healthcare might be possible but qualifying for the medical benefits can be complex.
  3. Family: Not many people want to be dependent upon family members, but it is an option.
  4. Long Term Care Insurance**: A reverse mortgage loan can be used to fund long term care directly, or there are a variety of life insurance products with long term care features that you can use.  

Long Term Care is a difficult subject to address and pay for, but since 70%* of Americans will need it at some point in their lives, it is a necessary conversation.  With a reverse mortgage loan used to directly pay for the care or cover some of the insurance cost**, it is something that may decrease some of your worries in retirement.  Is it time to consider a reverse mortgage loan? 

 

Video by: Harlan Accola, National Reverse Mortgage Director, NMLS#277693 with Fairway Independent Mortgage Corporation.

Ready to learn more?   Contact us today!

*Source: https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html  ** This advertisement does not constitute financial advice. Please consult a financial advisor regarding your specific situation.

 

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Should I Wait To Get A Reverse Mortgage Loan?

Many people think that they should wait until they’re older before getting a reverse mortgage loan because, generally, you can get a little more money as you get older. But let’s look at the factors that determine when is the best time. The reverse mortgage loan-to-value, or “principal limit factor” as we call it, is based on three factors:

  • The value of your home
  • Your date of birth
  • Current interest rates

The more valuable your home, the more money you’ll receive. So a lot of people say, “Well, the best thing to do is to wait until I’m older and my house is worth more because then I’ll get more money.” The fact is that doesn’t really make sense in the way that you look at scenarios when it comes to your long-term retirement planning.

 

 

A reverse mortgage loan will allow you to take out more money the older you are. The amount of your reverse mortgage proceeds increases by about 1% each year.

The lower the current interest rates are, the more money available to you. The higher the interest rates are, the less money you will be able to take out.  

So let’s look at the factors behind this. First, the value of your house will probably go up, but we don’t know that for sure. We also know from 2008 that home values can go down. So it’s usually better to get a reverse mortgage now since you can always refinance if your home’s value goes up dramatically in the future. A reverse mortgage loan can also protect you if your home’s value decreases. It makes sense to lock in a certain value and consider refinancing if the value goes up.

Now the second thing to consider is that you will get more funds available as you get older.  However, if you use the reverse mortgage to convert all or a portion of your home’s value into a reverse line of credit (ReLOC), your credit line will go up faster than the amount of money available to you from the increase in your age. The best time to start the ReLOC is as soon as you qualify for a reverse mortgage at age 62 because that starts the line of credit growth in motion.  Based on past history, your ReLOC will grow by 4-6 % annually every year that you don’t use the money.

Lastly, let’s look at the impact of interest rates. Right now we’re in a time of historically low interest rates. Many financial analysts and economists believe it’s far more likely that future rates will go up, not down. They might stay low for a long period of time, and that’s great, but that insures you that you will get the most available money from your home’s value.  

So the bottom line is that in most cases, it doesn’t’ really pay to wait. You should look at your individual situation.  Our loan specialists are here to help.     

 

Video by: Harlan Accola, National Reverse Mortgage Director, NMLS#277693 with Fairway Independent Mortgage Corporation.

Ready to learn more?   Contact us today!

 

 

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Ownership and Title

One thing to consider with all mortgages, including the reverse mortgage loan, is how ownership of the property is structured.  In most instances, the property title is held in traditional fee simple or joint ownership.  However, occasionally the home ownership can be in a trust.

 

 

There are only two types of trusts - revocable and irrevocable. However, there are many different names and variations within each of these types.  Generally speaking, in a revocable trust the grantor is in charge of all of the assets within the trust right up to the end, meaning the grantor can make changes at any time without the consent of the beneficiaries.  The assets of the trust are transferred to the beneficiaries upon the death of the grantor.  In an irrevocable trust, the assets are transferred out of the grantor’s estate to the trust, with control of those assets given to a third party (e.g. - an adult child, attorney or bank).  The grantor cannot make any changes to the trust without the consent of the beneficiaries. 

We can do a reverse mortgage in either situation where the property is in a revocable or irrevocable trust.  However, a review of the trust document is required.  In some cases, there may be a need for your attorney to prepare an addendum to make sure that the language complies with the terms of the reverse mortgage. 

A common example of an irrevocable trust is a life estate.  In a life estate, title to the property is given to someone else, usually the children, with the original owners retaining the right to occupy the home as long as they live.  We can do a reverse mortgage when a life estate exists.  However, the children / heirs to the property must agree to the loan and be a part of the loan process, which would include participating in the HUD counseling, signing application and closing documents, etc.

Is ownership of your property held in a trust?  Just ask us about your individual situation and whether it would meet requirements for a reverse mortgage.  You might find that it’s a lot simpler than you realize. 

Video by: Harlan Accola, National Reverse Mortgage Director, NMLS#277693 with Fairway Independent Mortgage Corporation.

Ready to learn more?   Contact us today!

 

*This is not tax, legal or financial advice. Please consult a tax, legal or financial expert for your specific situation.

 

 

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Three Buckets

The Sacred Cow of Home Equity

Many people feel that paying off their home and having no mortgage with lots of equity is the Holy Grail of retirement. Several people wait until their home is paid off before they retire and then feel they are safe to do so. The truth is that home equity is good, but it is not great because it is not liquid. In the face of fluctuating home prices along with nursing home and long-term care threats, it is typically better to have your equity in cash and in a form that you can control instead of relying on uncontrollable factors.

With people losing their homes in the depression era of the ‘30s and the latest round of the housing foreclosure crisis starting in 2008, many people feel that having a paid-off house in retirement is the safest way to go. The fact is that when a reverse mortgage loan enters the picture, the rules change because there is no payment and no risk of foreclosure as long as you live in the home as your primary residence and pay insurance and property taxes and maintain the home. (Of course, you have to pay property taxes even if you don’t have a reverse mortgage.) If you can use home equity without risk of foreclosure from missing payments, then the old rule of having a paid-off home in order to be secure may no longer be the best option. The truth is that a home is a great place to store memories but not a great place to store assets.

Once you understand that home equity is good, but cash is better, then the three buckets illustrated above will make a great deal of sense. During our earning years, we take money from the first bucket – W-2 Income – and put it into the second bucket – Retirement. What we also do is put quite a bit of our income into the third bucket – our home – purchasing it, making payments, improving it, etc. When we come to retirement, it is normal and expected to start drawing from bucket #2 (and stop contributing). Our first bucket decreases into just social security and pension income. However, most people continue to put money into bucket #3 when they don’t need to. They sometimes continue to make payments when there is more than enough equity in bucket #3. They should let that bucket take care of its expenses as well as give them a cash flow that is not taxable. What they don’t realize is that with a reverse mortgage, they can take cash out of bucket #3 just like bucket #2.

In the 3 bucket image above, notice the direction of the arrows and how they change to maximize your retirement income for post-retirement income on the lower rectangle. If you adopt this strategy as proven by Texas Tech research* and Boston College for Retirement Research**, your retirement funds will give you more income and be far more likely to outlast you! This is a big mental paradigm change. However, it is very imperative for you to understand the retirement rules, from taxation to home equity and especially long-term care issues, are just very different from what happened during your earning years. Retirement is a different game and has different rules. The better you understand those rules, the better your retirement income will be.

Let us explain why bucket #3 is so valuable for your retirement. Ask a local Reverse Mortgage Planner for more information about how a reverse mortgage loan works, we would be happy to be your reverse mortgage lender. 

* Pfeiffer, S., Ph.D., Salter, J., Ph.D., CFP®, AIFA®, & Evensky, H., CFP®, AIF®. (2013). Increasing the sustainable withdrawal rate using the standby reverse mortgage. ** Ellis, C. D., Munnell, A. H., & Eschtruth, A. D. (2014). Falling Short: The Coming Retirement Crisis and What to Do About It.

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