Often when we meet with clients, we hear statements like: “I don’t need the money right now; but when I do need it, I’ll get in touch with you.” Today, I’ll attempt to show you how faulty this line of reasoning is, and how to make your home’s equity work for you right now to take care of your future.
     As you are hopefully aware, the HECM Adjustable Rate Mortgage (ARM) allows the borrower to elect to place their funds in a Credit Line or Line of Credit, from which the borrower can withdraw funds as needed. Interest only accrues on the balance of funds that have been withdrawn, and it thus operates much like a Home Equity Line of Credit. Of course, with the Reverse Mortgage Credit Line, you are not obligated to make monthly payments.
     Now for the huge difference: the Reverse Mortgage Credit Line grows in size as time goes by. That’s right, I said it: the unused balance of your Credit Line becomes larger each month. Your unused balance is not gaining interest, so you’re not going to be taxed, but it will grow just as if the bank was paying you interest.
     If you look at a typical Reverse Mortgage Loan Comparison, you’ll see a figure called the Credit Line Growth Rate. At this moment in time, the Growth Rate will be your Interest Rate plus 1.25%. On the Reverse Mortgage Loan Comparison I created today, the Interest Rate is 2.99% and the Credit Line Growth Rate is 4.24%. I know I’m putting some of you to sleep with these numbers, but stay with me now; this is where it gets interesting.
     Our borrower, Mr. Sample, closes his Reverse Mortgage Loan at the age of 64. He places his funds ($230,000) in the Credit Line Account which has a Growth Rate of 4.24%. Since he doesn’t need the money right now, he leaves the funds in the Credit Line account where it doesn’t accrue interest, but does grow in size due to the Growth Rate.  At the end of the first year, his available Credit Line balance has grown to $239,752. Not too shabby, but since the Growth Rate compounds, it grows faster and faster each month. At the end of 10 years, the available balance has grown to a whopping $348,395, and all Mr. Sample had to do was make a decision for his future without waiting until he was up against the wall.
     Good decisions are generally made when we’re not under pressure. Do yourself and your family a favor and think about improving your future today.

     You’ve got a lot of living to do.

The Reverse Diaries: Weekend Musings

It’s Saturday morning, and I’m feeling the pressure of deciding what to write about for Friday’s blog post – so you see I’m already a day late.  There are so many topics in which I believe you’ll be interested.  At first I thought I might opine on a Department of Housing and Urban Development projection that they expect Reverse Mortgage commitments to increase by more than 20% in 2012.  Our face-to-face experiences with the Golden Agers we meet with has shown a steady increase of those deciding to move forward with a Reverse Mortgage.  In addition, we find that more and more eligible Seasoned Citizens have at least a working knowledge of how a Reverse Mortgage works, as opposed to 5-6 years ago when reverse was just how you backed your car into a parking spot. 

 Then I thought I it would be interesting to write about how more and more financial planners are recommending Reverse Mortgages to their clients.  There are so many reasons – some of which we have written about previously – that I could easily fill up a new posting here. 

 Of course, there was the good news that the U.S. Senate approved sixty million dollars to be used as grants for counseling agencies that perform Reverse Mortgage counseling – a requirement for anyone intending to apply for a Reverse Mortgage.  In the past, the agencies that received these government funds then offered free Reverse Mortgage counseling.  Not bad, since the normal charge, for a counseling session, is set by HUD at $125.

 But then, I opened up Saturday’s local newspaper, flipped to the section devoted to Seniors, and read a column entitled: Ask The Expert, which was about Reverse Mortgages.  As is usually the case when I read the words of self-proclaimed experts, my blood boiled – which is not such a good thing at my age.  This “expert” wrote about a situation where there are two names on the deed to a home, and how reverse mortgage brokers often tell couples that if they remove the younger borrower from the deed it will result in a larger loan for the remaining borrower (and, she writes, a larger commission for the broker), and that few brokers will tell the borrowers the downside: “If the spouse on the loan dies first, the survivor will have to pay the lender the full balance of the loan.”  (The words in bold were hers.)   Now, as mortgage professionals, we ascribe to a Code of Ethics as outlined by the National Reverse Mortgage Lenders Association (NRMLA) which prohibits this sort of activty.  After over 32 years in business, we maintain a Triple A Rating with the Better Business Bureau.  No one can be successful in this or any business by hurting your clients/customers to make an extra dollar.  In fact, in cases where a Reverse Mortgage does not make sense for a particular client, we regularly counsel against going through with it.

I would invite the “Expert” to spend a few days with our Reverse Mortgage Specialists and find out how we really do business – but then she would have to write about facts rather than conjecture, so I doubt we’ll see her anytime soon.

 Ahhhh, I feel my blood pressure going back down….

Alzheimer’s Disease – “A Battle Cry”

The U.S. government needs to correct “dramatically underfunded research” for Alzheimer’s disease and to improve diagnostic tools and treatments, according to a report released Monday by the Alzheimer’s Association.  The report went so far as to mention that public sentiment regarded an Alzheimer’s diagnosis as worse than a malignant cancer diagnosis, since an Alzheimer’s patient has no hope of beating the disease.

“By making Alzheimer’s a national priority, the U.S. has the potential to create the same success that has been demonstrated in the fights against other major diseases.  Federal leadership helped lower the number of deaths from conditions such as HIV/AIDS, Cancer and heart disease,” the report’s authors wrote.

Alzheimer’s is the sixth-leading cause of death in the USA.  It’s the only cause among the top 10 without a way to prevent, cure or slow its progression.  Moreover, mortality rates for Alzheimer’s disease are rising, whereas heart disease and cancer death rates are declining, according to the CDC.

The formation of the National Alzheimer’s Project Act (NAPA), signed into law by President Obama last January will create a national strategic plan to address and overcome the rapidly escalating crisis of Alzheimer’s.  Currently, an estimated 5.4 million americans have alzheimer’s disease.  This number has doubled since 1980, and is expected to be as high as 16 million by 2050 as the U.S. population continues to age.

Key government spending facts on Alzheimer’s, According to the Administration on Aging:

• In 2011, total Medicare and Medicaid spending for individuals with Alzheimer’s disease is estimated at $130 billion.

• The average per person Medicare payments for those with Alzheimer’s and other dementias are three times higher than for those without these conditions.

• Medicaid spending for older adults with Alzheimer’s disease and other dementias is 9 times higher.

More sobering than statistics, however, are the faces behind this degenerative illness; the patients, relatives and caregivers.  Hopefully, with a national priority and increased funding, we can begin to ameliorate the outcome of an Alzheimer’s diagnosis.  In the interim, there are solutions which can enable alzheimer’s patients to extend their stay in the comfortable and familiar surroundings of their home; thereby providing a healthier and happier alternative than going to a nursing home.

One such practical solution, Reverse Mortgages, offers alzheimer’s patients who are homeowners 62 or greater the opportunity to safely finance in-home healthcare by converting a portion of their home equity into tax-free funds.  This solution will also provide much needed relief to an often overtaxed caregiver.

Our licensed Reverse Mortgage specialists are experienced in working with Alzheimer’s patients and their families and can tailor the best program to meet their needs as well as easily visit with them in the safety of their home.

If you don’t already have a relative or friend stricken with Alzheimer’s, odds are you will during your lifetime.  Thus contact your senator or congressman via letter or email demanding that Alzheimer’s is made a national priority.

My next blog entry profiles my loving grandfather as well as the beloved father of our company president, both of whom succumbed to Alzheimer’s.

More About Retirement

The weather here on Long Island this weekend was almost spring-like, so I went to the park and walked around for the first time in months.  I came upon two elderly gentlemen sitting on a bench overlooking the lake.  One of the men said to his friend that his wife asked him this morning what he was going to do today.  He replied: “Nothing.”  She said, “That’s what you did yesterday.”  He answered: “Yup, but I didn’t finish.”

Okay, okay, that didn’t really happen, but some of us look forward to retirement so we can do nothing if that’s what we decide to do on a given day.  Most of us would go batty if we had to live the rest of our lives doing nothing, but doing something usually requires some money.  Those of you who have one of those incredible union pensions I’ve been reading about the last few months might want to go back to packing for your late winter trip to a warmer clime.  For the rest of us, let’s talk about a few retirement ideas.

I’m not an expert retirement planner (believe me) and I have made a few wrong turns in my financial life.  One problem was that I was never going to get old.  Wrong.  Second problem was some of that IRA money was needed for a juicy investment.  Bad choice.  Then, my 401k shrunk to a 201k back in 2008.  Yikes.  I’m in my early 60′s and the retirement piggy bank looks like that picture above.  Now what?

I checked the lottery numbers this morning, and – sigh – I’ll be at work tomorrow morning.  The Geico radio advertisement just informed me there is no money tree and no pot of gold at the end of the rainbow.  Social Security should be there in a couple of years when I turn 66, but that’s not nearly enough monthly income on which to retire.  As some of you may have already guessed, I’m thinking: HECM Reverse Mortgage with Tenure Payments for Life.  Tax free monthly payments wired into your bank account for the rest of your life – no matter what!  You can’t outlive these payments – as long as you continue to reside in your home, those tenure payments from the bank will arrive in your account on the same day every month.  The interest rate on this Reverse Mortgage right now is around 2.9% and you only owe the interest on the amount of principal you’ve actually received.  And, you maintain the ownership of your home in your name with no monthly payments to the bank.  None.

I know, you want to know how much you are eligible to receive right?  I’ve thought of that too.  Give us a call at (888)267-7869, or send me an email at rdonohue@seniorsecurity.com  and we’ll fire up the Reverse Mortgage Calculator, so you can see how much closer to retirement you can be.  As for me, I’m going for a walk in the park with a big weight off my shoulders.

Finally, it pays to get old.

Who Are You Calling Old?

You can call me a baby boomer; you can call me a retiree; you can even call me late for dinner, but don’t call me old.  That’s the word from a poll commissioned by the Associated Press-LifeGoesStrong.com conducted in June of this year.

 The generation of baby boomers who once proclaimed that: “we’re never going to get old,” are holding fast to that way of thinking.  While younger adults call 60 the beginning of old age, about half of boomers are pushing the number back to 70, and almost a quarter of them don’t think you’re old until you’ve reached 80.  As they march into their early sixties, many are finding out it’s not so bad, and they feel upbeat about their futures.

 A decided majority of baby boomers are actually enthusiastic about aging and all its fringe benefits like watching children and grandchildren grow up, spending more time with family and friends, and having time for favorite activities.  “I still think I’ve got years to go to do things,” says Robert Bechtel, 64, ofVirginia Beach,VA.  He retired last year and now has less stress and more time to do as he pleases.

 About half of the baby boomers predict a better quality of life for themselves than their parents experienced as they aged.  “I have no intentions of sitting around the house,” said Lynn Brown, 64, of Apache Junction, AZ.  “I’m enjoying being a senior citizen more than my parents did.”

 Almost all of the boomers – 90 percent – are making a conscious effort to eat better to improve their health, and more than half have taken up a regular program of physical exercises as well as mental exercises to stay sharp.  Loretta Davis, 64, ofSalem, W.VA, reads, plays games on her computer and takes walks.  “I wish I had been more conscious of what I was eating earlier in life,” saidDavis.  But she said getting older doesn’t bother her: “I’m just glad to be here.”

 Oops, gotta go know, I’m late for the gym….I’ve got a lot of living to do.

Famous Late-Bloomers

If you are a Senior Citizen like I am, then you have probably come to the realization that we are in for a few more aches and pains, we might forget a few things from time to time, and our eyes don’t see as well as they once did.  So this body that carries us around is getting older, even though our mind still feels vibrant much as it did when we were in our thirties or forties.  We still have a lot of living to do, and it might surprise you to hear some stories of famous people that were late-bloomers – that is, they made a name for themselves in their sixties or later.  I’m not suggesting that you need to go out and do what they did, but I do want to inspire you to live your life rather than letting the aches and pains get the better of you.

 

Let’s look at a couple of people who did big things late in life: 

Grandma Moses…started oil painting at the age of 75, after having to give up her hobby of embroidery because of arthritis in her hands.  Quite a prolific painter, during the next three decades, she completed over three thousand paintings, one of which hangs in the White House to this day.

Colonel Sanders…his working years included stints as a steamboat pilot, an insurance salesman, a railroad fireman, and a farmer.  Finally forced to retire at the age of 65, he used the $105 from his first Social Security check to visit over 1,000 restaurants trying to sell his idea of a Kentucky Fried Chicken franchise before someone agreed to sign on.  As they say, the rest is history.

Peter Mark Roget…after retiring from the Royal Society of Medicine at the age of 70 he began writing the world’s first Thesaurus, or book of synonyms.  Roget’s Thesaurus was first published when Roget was 73, and while alive, he presided over 28 additional printings.

Ray Kroc…Ray worked for 17 years as a paper cup salesman, then another 17 years peddling a milk shake machine known as the Multi-Mixer.  While suffering from diabetes and arthritis, Kroc bought the McDonald’s brothers fledgling hamburger fast food restaurant at the age of 59 and went on to franchise McDonald’s Hamburgers and sell over a billion hamburgers.

Winston Churchill…He lost every election he ever entered as a candidate until finally – at the age of 62 – winning the election for Prime Minister of Great Britain just prior to World War II.  His leadership along with President Roosevelt was instrumental in winning the war forGreat Britain and theUnited States.

Oscar Swahn…not as well known as the others, he won two gold medals in shooting events in the 1908 Olympics at the age of 60.  In the 1912 Olympics, he won another gold to become the oldest gold medal winner even till today.  He finally slowed down in 1920, and at the age of 72 only won a silver medal.

 

So, what is old?  Do you feel like giving in to age, or would you rather live life to its fullest?  I know what I’m going to do….

Everybody Wins….by Joe Conforti

My Father was a tough World War II Navy veteran, as well as a loving husband and Father.  So, when he was diagnosed with lung cancer and chronic emphysema, he battled like a true warrior.  He went through years of treatments, chemotherapy and radiation; and as a result, burned through most of the money he and my Mom had saved for their retirement years.

After his long battle, my Mom was left alone with very little money.  My Father’s social security check and small pension were hardly enough to pay the mortgage, heat the house, buy food and prescriptions and still live like a human being.  There was no money in the bank, no safety net and no security blanket.  The only way she could make ends meet was with a hundred here and a hundred there from my brother, my sister and from me.  The problem was that each of us had two kids in college and collectively, we couldn’t afford to pay Mom’s bills.  The financial situation was getting desperate and we had to find a solution quickly.

We went through the motions of trying to get a Home Equity Line of Credit from our bank, and a local credit union, but to no avail.  One day a buddy of mine said he read an article about a FHA insured program called a “reverse mortgage.”  I was working in the forward mortgage industry at the time, and had heard of reverse mortgages, but didn’t pay much attention to them because I thought they were for “old people.”  My friend explained it rather poorly, but what stuck in my head was that it was a program for people 62 years of age and older; it was government insured; the existing mortgage would be paid off, and the additional funds could be used by my Mom as a nice nest egg to spend as she saw fit.  The most amazing part was that the money did not have to be paid back during her lifetime.

My brother and sister couldn’t believe it.  We asked around and heard good things and bad things alike:  Mom could lose her home, Mom would be spending our inheritance, and she could lose her social security income.  After much research, we learned that none of these complaints were true.  In addition, we learned the money she receives from the reverse mortgage is 100% tax free, and her heirs are protected because they do not inherit the debt and would not be required to pay back more than the house is worth.

We prayed this was all true and took a leap of faith that this would solve all our problems, while giving my Mom security and peace of mind.  We arranged for Mom to receive $1,000 per month for life; and she took an additional $50,000 to travel and fix the house.  She took trips to Europe, the Holy Lands, the Pyramids in Egypt, and Scotland, where she signed up my brother and me to play golf at St. Andrews Golf Course.  We were very happy that she was able to enjoy her remaining years and live a full life until she passed away in 2006.

Later, as we settled her estate, we discovered that her home had appreciated from $375,000 to $525,000 (just before the housing market crashed).  We were astounded that there was $146,000 in equity left for us when we sold the house which we never expected.  The inheritance was just icing on the cake – most importantly, Mom enjoyed the Golden Years of her life rather than squeak by.  The reverse mortgage turned out to be a Godsend for us all.

*Note: Joe Conforti is a Reverse Mortgage Specialist for Senior Security Home Advantage

Equity For The Kids

Since the end of World War II, the members of the Greatest Generation have been consumed with the hope and desire that their children would have a better life than they had.  Much of that is a result of living through the Great Depression and the war years.  If you listen to your parents and grandparents who survived those times, you’ll hear them talk about “getting by” with less, and not having any extra money or extra anything else for that matter.  Sacrifice was a part of their lives, and even when times became better, they lived in a frugal manner in order that their children would have more.

So, it is understandable when considering a Reverse Mortgage (which we know will increase in size over the years) our parents hesitate.  They look at one side of the equation and see that if the mortgage balance increases over time, then the equity must decrease, thus leaving less inheritance for the children.  If there were no such thing as appreciation, they would be correct.  Fortunately, appreciation is alive and well, albeit hibernating in the early part of 2011, but alive nonetheless.

A quick look at some recent history is in order here.  I am using figures for the New York Real Estate market derived from the House Price Index (HPI) which is “designed to capture changes in the value of single-family homes in the U.S.” and is published by the Federal Housing Finance Agency (FHFA).  In the last 20 years, New York homes have appreciated by a total of 111% including 4 years where values went down.  This gives us an average of 5.55% per year.  If we look at only the past 10 years, area homes have appreciated by a total of 68%, for an average of 6.80% per year.

Now, without going into so much detail that your head will start to hurt, let’s look at the basics.  John and Mary Smith take a Reverse Mortgage on their $400,000 home at the age of 67 to pay off their existing mortgage.  Their initial loan balance is $259,200 and their equity initially is $140,800.  After 10 years, the new loan balance is $486,358; and, using an appreciation rate of only 5% per year, at the end of 10 years, the value of their home has increased to $651,557.  Thus, their equity has actually increased to $165,199.  Even going out to 20 years, their equity is $148,722 after factoring the interest accrual –  still a greater amount of equity than the day they started.  All this, and we haven’t even touched on the savings from paying off their forward mortgage. 

The bottom line is that John and Mary lived a much better life during the years after they closed on the Reverse Mortgage, and still left their children with a great inheritance.

You, too, have a lot of living to do; don’t let the Golden Years pass you by.

Equity Over There, or Equity Right Here

The subject of equity is a part of virtually every conversation about Reverse Mortgages – at least the ones of which I have been a part.  Most people have an idea of what equity actually is; in that it is something of value expressed as a dollar figure.  As it relates to a discussion of a Reverse Mortgage, most potential borrowers think of the equity in their home as the difference between the home’s market value and the balance due on any mortgages and liens.  In other words, the dollar amount that could be converted into cash if the home were sold.  In this way of thinking, they are one hundred percent correct.

We often hear the comment that as time passes, the Reverse Mortgage will “eat into the equity of my home.”  This is less true than it may seem on the surface.  While the Reverse Mortgage will increase in size due to the accrual of interest and mortgage insurance, thereby displacing some of the equity as it exists at that moment, there are other forces acting on the valuation of the homeowners’ equity at the same time.  In the realm of real estate finances, a snapshot in time does not tell the complete story.  The valuation of real estate is on a time continuum; that is, it varies [mostly] up and [occasionally] down due to market conditions.  Thus, we need to step back a bit and look at the whole forest rather than one tree. While it may be true that on the day your Reverse Mortgage monthly statement arrives in the mail, your equity has diminished by one month’s worth of interest; your home is most likely travelling on its path to increased value – and as it goes this route, your equity increases. 

Finally, as we look at the word “equity” in the dictionary, there are other words with similar meanings.  It now becomes easy to see that Equity = Capital = Wealth, and we can then visualize another concept – something I will call Pocket Equity.  Before you close on your Reverse Mortgage, many of you will still be paying monthly payments on your mortgage(s), Home Equity Loans and/or credit cards.  So, it follows that the equity that was in your pocket (or bank accounts) has diminished and is now in the possession of your creditors.  While you are concerned about the equity in your home, you are reducing your Pocket Equity and probably not living the life style you deserve.  After closing on the Reverse Mortgage, you can still watch your home’s equity move with the increased value of the real estate, and watch and feel the increased equity in your pocket without having to make those monthly payments.

Remember, you’ve got a lot of living to do!

Reversing A Foreclosure

     We hear – almost on a daily basis – about the rise in foreclosures since the financial meltdown.  Of course, Seniors are not immune to the spector of foreclosure, and more seniors are falling behind on their mortgages than at any time in the past.  Some may have refinanced earlier this decade when rates were low, real estate appreciation was high, and it seemed like an excellent way to pay off credit card debt.  Others are being squeezed between fixed incomes and rising costs of living.  Still others, not ready for retirement, may have joined – unwillingly – the ranks of the unemployed, as have so many citizens.

     There is possible help for a Senior in this predicament, provided there is still a fair amount of equity remaining in their home.  One of the beautiful aspects of a Reverse Mortgage lies in the fact that the borrowers’ credit rating does not enter into the equation of getting approved for the loan.  Thus, being in dire financial straits does not eliminate the Senior homeowner from resorting to refinancing via the Reverse Mortgage route. 

     It is important that the Senior homeowner not hide from the issue, because the costs of the mortgage in arrears will grow each month eating away at the precious equity needed to make the figures work on the Reverse Mortgage.  There have been rare occasions wherein the existing mortgagee has agreed to a reduced payoff amount on behalf of the Senior homeowner, but to count on that would be akin to playing Russian Roulette. 

     As soon as the mortgage payments become difficult or impossible to pay, the Senior homeowner needs to investigate whether a Reverse Mortgage will work in their circumstance.  Merely telling your existing mortgagee that you are in the process of “getting a Reverse Mortgage” will not stop the expenses from piling up.  Much like when you hear that little noise coming from under your car’s hood, the longer you wait to have it checked out, the more it will cost you in the end. 

Over the years, we have helped many of our fellow Seniors back from the brink of losing their home, so we know of what we speak.  Do not be embarrassed, we understand and can help.