Kelly Ridings Sings With His Mother

Kelly Ridings grew up singing hymns with his mother. She now has Alzheimer’s, but her songs remain – listen to this amazing mother and son sing a duet:

The Heart Sings On

 

Can a reverse mortgage create a financial safety net?

Laurie MacNaughton © 2018

Can a reverse mortgage create a financial safety net in retirement?

In a word, yes.

This morning I received a call from a wealth manager who led off by saying he wasn’t “that familiar with reverse mortgages.” He specifically wanted to know whether a reverse mortgage could offer retirement-aged clients a measure of security during market fluctuations.

Here was my answer: the most familiar “flavor” of reverse mortgage is the line of credit. It’s an equity line that is repaid when the last person on title permanently vacates the home. Once the home is no longer the primary residence, typically it is sold and the loan is repaid; the homeowner, heirs, or estate get the remaining equity. End of story. No mystery here, nothing “too good to be true.”

Many wealth managers routinely recommend traditional equity lines. However, with a traditional line of credit, once homeowners draw funds they then have a monthly mortgage payment due. Because the retirement years can be a time when access to liquidity is crucially important, a monthly mortgage payment can create an increasingly unstable financial environment.

A reverse mortgage line of credit does not have a monthly repayment obligation. This means that if homeowners need a cash infusion, they do not pick up a monthly mortgage payment. Furthermore, the unused portion of a reverse mortgage line of credit grows larger over time, making more funds available for future use.

As is the case with other homeownership, property taxes, homeowner’s insurance, and home repairs must be kept current, and if there are condo dues or a homeowner’s association, fees must be paid on time.

The FHA-insured reverse mortgage is not exotic, mysterious, nor even particularly complex. It can be, however, a helpful financial safety net when life becomes unpredictable.

For more information on reverse mortgage, give me a call. I always love hearing from you.

 

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Market volatility and reverse mortgage

Laurie MacNaughton © 2018

If you’re even a casual market observer, Monday’s financial news grabbed your attention as the Dow plunged 1175 points, the biggest point drop in history.

As a result of the market turbulence, the first call I took Tuesday went like this: “In light of the market crash, should I do a reverse mortgage?”

So…a couple things here.

First, and perhaps most importantly, a loan officer is not the same thing as a financial planner, wealth manager, nor accountant; most loan officers are neither estate attorneys nor CPAs. Even if your particular loan officer does carry one or more of these designations, he or she should not be dispensing advice across disciplines, as conflicts of interest might quickly become an issue.

Second, even though 1175 is an uncomfortably large number, percentage-wise it’s not anywhere near a big enough drop to qualify as a market “crash” by any reasonable definition.

Third – and I want to emphasize this – if a reverse mortgage was a good fit before a market plunge, it’s a good fit following a market plunge. If it was a poor fit before a drop, it may well continue to be a poor fit. And for those urgent reverse mortgage sales pitches? It’s always a good idea to listen to a “sky-is-falling” message with a healthy measure of skepticism.

But this topic does suggest a very real question, namely what are some factors that make a reverse mortgage a good fit?

Optimally, a reverse mortgage is one part of a long-range financial plan in retirement.

Here’s what I mean: as life expectancies continue to increase, retirement is going to take more than just Social Security. It’s going to take more than a well-funded 401-K. In fact, it’s going to take more than a pension, an annuity, an IRA, or a bank account – or a reverse mortgage. But when added together, these can combine to create a long-term means of maintaining dignity and independence in retirement.

So, don’t panic. And certainly don’t get caught up in catchy sales pitches. But do understand your options – and how a reverse mortgage can fit into your long-range financial plans.

If you would like more information on reverse mortgage, give me a call. I always love hearing from you.

 

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No crystal ball

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 the payment is crushing her – and she has new medical bills coming in. Looking back, what we really needed was a crystal ball.”

Truth is, a crystal ball would come in handy in much of life. It’s just that more is at stake when we’re dealing with our aging parents.

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 monies under management.

But for homeowners who wish to stay at home and need to leave 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 you or your loved one with retirement plans, give me a call. I always love hearing from you.

 

 

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In a nutshell: how a reverse mortgage works

Laurie MacNaughton © 2018

Reverse mortgages…you’ve seen the ads a hundred times. But odds are you have a lot of questions.

In a nutshell, here’s the scoop

The first thing to know is a reverse mortgage is an FHA-insured home loan. I always start with this point simply because there can be confusion about the fact this is a home loan, in many ways not unlike any other loan we’ve all grown up with.

Here’s where the difference comes in: a reverse mortgage loan is repaid when the last person on title permanently leaves the home. In fact, the very name itself comes from the fact the loan is repaid in reverse on the back-end, rather than being repaid monthly.

The second thing to know is there are two kinds of reverse mortgages, namely a refinance reverse mortgage and a purchase reverse mortgage.

Reverse Mortgage Refinance

The best-known “flavor” of reverse mortgage is the Home Equity Line of Credit. It only differs from a traditional line of credit in that a reverse mortgage line of credit is not repaid until the last person on title permanently leaves the home. In other words, homeowners can borrow some of their home equity without picking up a monthly mortgage payment.

Reverse mortgage proceeds can be used for any purpose. Common uses include:

  • Financial safety-net in retirement
  • Healthcare
  • Home repairs or improvements
  • Paying off debt

Reverse for Purchase

This is an seniors’-only purchase loan, and it was designed as a way for homebuyers to purchase a retirement home without adding a monthly mortgage payment to their retirement budget.

Homebuyers provide a down payment (typically about 50% of the purchase price), and the loan amount covers the other 50%. There’s never a monthly mortgage payment due.

Buying a home with a Reverse for Purchase loan is an ideal way for homebuyers to double their purchasing power, and it is notably easier to qualify for this FHA-insured loan than it is to qualify for most other home loans.

Homeowner Responsibilities

With either type of reverse mortgage, because they still own the home homeowners remain responsible for:

  • Property taxes (unless property tax exempt)
  • Homeowners insurance
  • Homeowners association dues (if applicable)
  • Condo Dues (if applicable)

To explore how an FHA-insured reverse mortgage might help you or your client with retirement plans, give me a call. I always love hearing from you.

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At 101 She’s a World Record-Holder

I don’t often repost – but this is too good to miss. She began running in 2009…at the urging of her then-79-year-old son.

You go, girl.

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In defense of equity consumption

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.

 

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