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4 reasons to consider a reverse mortgage

While aging in place -- including home maintenance, medical costs and property taxes -- will be the primary reason for seniors' tapping into home equity for decades to come, there are many other underestimated needs and wants that will quickly race to the front burner once a greater number of consumers better understand reverse mortgages.

In a recent column, we discussed the benefits of combining Social Security payments, securities portfolios and a reverse mortgage early into a retirement plan. By using the reverse mortgage to supplement the package during the life of the plan, researchers showed that a retiree's residual net worth (portfolio plus home equity) after 30 years is about twice as likely to be greater when an active reverse mortgage strategy is used than when the reverse mortgage is used as a last resort.
A significant percentage of older homeowners, plus their children -- the 79 million baby boomers who are now asking financial and lifestyle questions for their parents -- will consider a reverse mortgage as a viable opportunity in their life.

Why? Older people primarily want to stay in their homes, and the cash in their primary residences can help them stay there so they don't have to move to a retirement home. The bigger question becomes what happens if these huge groups do not stay in their homes or age in place? Where would we put them and how could we possibly fund such volume? Toss in the idea that people are living 30 years longer than they did 40 years ago and the potential shelter/care components become enormous.

More seniors are also figuring out that their kids have their own homes and don't need the parents' home. Those who do anticipate a child's or grandchild's need are acting sooner.

There are many people who took out a reverse mortgage for a specific use other than last-minute desperation.

For example, there's a grandmother in the Georgetown neighborhood of Washington, D.C., who took out a reverse mortgage on her million-dollar home and gave her two daughters $200,000 apiece so that they could use the money now "when they needed if for their own children" instead of getting the cash later in her estate when the grandkids had grown and moved on.

Or, the senior living near Boston, widowed at a young age, who got a reverse mortgage to put her daughter through nursing school.

An Oregon man, still working at age 68, used the cash from a reverse mortgage to buy a flat-bed truck that would carry the long sticks of PVC pipe needed for his sprinkler business.

According to the U.S. Bureau of the Census and the National Center for Health statistics, 80 percent of the older population -- persons 65 years of age and older -- own their own homes and 73 percent are owned free and clear of any mortgages, amounting to nearly $1.9 trillion in home equity. The biggest concern now is that mom and dad have no equity left in their home because of the downturn in property values.

However, there are still prime reverse mortgage candidates who have lived in high-cost major metropolitan areas for decades who still have plenty of equity to access and need only a sliver of it to make their lives more comfortable.

For example, a woman who worked part time as a ticket-taker for the Seattle Mariners relished her position at the home-plate entry gate. However, like many seniors, she simply could not make ends meet on her monthly income, especially when it came time for a major purchase.

"I needed a car," she said. "I mean, I really needed a car. I had to have something reliable to get to work."

She got a reverse mortgage for $30,000, bought a good used car and also paid bills. The remainder of the cash remains in a line of credit that grows at a moderate interest rate. When a friend tried to poke fun at her for paying the seemingly high fees to get the $30,000, it didn't bother her at all.

"I really didn't care what it cost," the woman said. "I love what I do, and this was the only way I could see to continue doing it."

The maximum loan fee on reverse mortgages is 2 percent on the initial $200,000 of the home's value and 1 percent on the balance thereafter, with a cap of $6,000. The fees seem too high to some, yet a bargain for others.

As the old saying goes, "You can tell somebody what something costs, but you never know what it is worth to them."
 

Mortgage News Daily

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    Posted To: MND NewsWire

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  • MBS Day Ahead: Brexit Strikes Back

    Posted To: MBS Commentary

    Ah Brexit... You thought you'd heard the last of it back in 2016? No such luck. Actually, it is a bit lucky to be hearing about it, at least as far as domestic rates are concerned. Both in 2016 and in the past week, Brexit-related developments helped rates move lower. The current iteration of Brexit drama is not anywhere near that of 2016 and neither is the market reaction. That said, there certainly has been a market reaction. Yesterday afternoon, that reaction was noticeable, but barely. The overnight session brought an even bigger move in British currency (Pounds Sterling), and a more direct response in US bond markets. Much like bonds' relationship with stocks, it will take quite a bit of drama in Sterling to motivate additional gains (at least if we're talking about gains that...(read more)

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  • Accounting, Subservicing, Warehouse Products; Freddie and Fannie Changes Roll On

    Posted To: Pipeline Press

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  • MBS RECAP: More Stock Losses Bring More Bond Bounces

    Posted To: MBS Commentary

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  • Afternoon Mortgage Rate Improvements For Most Lenders

    Posted To: Mortgage Rate Watch

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  • Millennials Could be Foregoing Equity Wealth

    Posted To: MND NewsWire

    While reams of research have been done on why members of the Millennial generation are less likely to own a home compared to their baby boomer and Gen X elders at the same age, the Urban Institute (UI) notes that knowing the reasons doesn't necessarily shed much light on the potential long-term implications of this behavior. Delaying homeownership , according to UI analysts Jung Hyun Choi and Laurie Goodman, may reduce the wealth the generations' members will acquire over their lifetime. Goodman and Choi used a dataset called the Panel Study of Income Dynamics (PSID) which has tracked individuals since 1968 to identify individuals who reached age 60 between 2003 and 2015 and gather information on their histories, including the age at which they bought their first homes. Half of the older adults...(read more)

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  • MBS Day Ahead: CPI Gets First At-Bat, Then Back to Stocks

    Posted To: MBS Commentary

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  • Mortgage Applications: Refis at Lowest Levels Since 2000

    Posted To: MND NewsWire

    Mortgage application activity continued to shrink during the week ended November 9. The Mortgage Bankers Association said its Market Composite Index, a measure of mortgage application volume dropped by 3.2 percent on a seasonally adjusted basis when compared to its level on November 2. The index has declined by an aggregate of 9.7 percent since it posted its last increase back on October 19. On an unadjusted basis the index was down 5 percent. The Purchase Index also continued its downhill trend, decreasing 2.3 percent on an adjusted basis to its lowest level since February 2017. The unadjusted Purchase Index fell 5 percent week-over-week and was 3.0 percent lower than the same week in 2017. The Refinance Index decreased 4.3 percent from the previous week to an 18 year low (December 2000)....(read more)

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  • MBS RECAP: Best Levels in More Than a Week Ahead of CPI

    Posted To: MBS Commentary

    CPI (the Consumer Price Index) has been the most relevant economic report on the horizon since the balmy NFP report from 2 weeks back. Reason being: NFP contained a strong wage growth component, and that always generates some fear among bond traders that higher wages will translate to higher inflation. Economists aren't exactly expecting a big uptick in tomorrow's CPI data, but that's precisely why it's been something of a risk. In other words, if CPI were to come in much stronger than expected tomorrow morning, it could dampen spirits in the bond market. Of course CPI could always come in weaker too--which would cast even more doubt on the ability of wages to translate to inflation in the current economic cycle. It's not that it hasn't been happening, just that it hasn't...(read more)

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  • Token Improvement For Mortgage Rates

    Posted To: Mortgage Rate Watch

    Mortgage rates improved by what could only be described as a token amount today. In other words, we're not talking about any major changes. In fact, mortgage rates themselves will be unchanged from Friday for almost any scenario. As is so often the case, we can only measure the change in terms of "effective rates" (which take upfront costs into consideration). In general, changes in mortgage rates are reserved for big market moves whereas upfront costs and effective rates allow for smaller changes in the overall cost of financing. The bond markets that underlie mortgage rates were closed yesterday for the Veterans Day holiday. In the meantime, the stock market lost ground rather abruptly . At times, bonds (rates) will take cues from stocks--especially when the latter is making a big move lower...(read more)

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Bonnie Koff  |  Licensed Associate Real Estate Broker  |  William Raveis Legends Realty Group  | Tarrytown Office 
914-332-6300  |  37 Main Street, Tarrytown, New York 10591  |  Email