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4 documents you need for a reverse mortgage loan

2016-11-18T12:10:00.001-08:00

When you apply for a reverse mortgage loan, you will need to provide some documentation. A reverse mortgage loan is a loan, after all, and any loan against your home's equity will require some paperwork.

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Here we offer details on the documentation you'll likely have to provide:

Valid identification.
Verification that the property is your principal address.
Proof of income so you have enough money to pay property taxes and homeowners insurance.
Certificate that you have undergone reverse mortgage loan counseling.

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The first and most basic piece of information that the reverse mortgage loan lender needs is a valid identification that shows how old you are. To get a reverse mortgage loan, you must be at least 62 years old.
In most cases, a current driver's license is sufficient, according to reverse mortgage loan lending professionals.
In addition to proving that you're old enough to get a reverse mortgage loan, this requirement helps the lender abide by "know your customer" rules.

AA reverse mortgage loan is available only on your principal home. That means that, if you own more than one home, you can get only one reverse mortgage loan, and it has to be your principal residence.
The U.S. Department of Housing and Urban Development (HUD) defines "principal residence" simply: "A principal residence is a property that will be occupied by the borrower for the majority of the calendar year."
Typically, the address on your driver's license is the same as your principal address. If you don't have a driver's license, or if it doesn't reflect your principal address, then the lender might ask for other documentation, such as tax records, bank statements or voter registration.

The lender wants to make sure that you have income to maintain your home and pay the taxes and homeowners insurance premiums.
From a lender's perspective, you have many potential sources of income. Maybe you have a job, full-time or part-time. Maybe you own a small business. Maybe you collect Social Security retirement income. Maybe you draw pension income, or you have required minimum distributions from retirement accounts.
The documentation to prove your income depends on the type.
"The details of those things are going to be specific to your loan," says Paul Fiore, executive vice president of sales for reverse mortgage loan lender American Advisors Group, or AAG.
You might provide copies of your W2s, or paycheck stubs, or a Social Security award letter, or statements from your bank or the administrators of your retirement accounts.
If you don't have enough income to pay property taxes and homeowner's insurance, you still might be eligible for a reverse mortgage loan. The lender would structure the loan with a "set aside" to pay those costs.

6 questions to ask before getting a reverse mortgage loan

2016-11-18T12:07:00.006-08:00

Reverse mortgage loans are complex and have many requirements. When you apply for a reverse mortgage loan -- and even before you apply -- there are a lot of questions to ask.

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Here is a guide to some of the most important questions besides the ones you'll ask about interest rates and fees. The answers will help you understand who you're working with, how the reverse mortgage loan process works, how long it takes to get the proceeds of the reverse mortgage loan and who should be involved in the information-seeking and decision-making.

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When you shop for a reverse mortgage loan, there is an important designation that can help you decide which lender and which loan officer to choose.
“A reverse mortgage loan is a complex financial product, and you need to make sure that who you're working with is going to really help you understand how it works, and whether it makes sense for you, and if they take a consultative approach to the process with you," says Paul Fiore, executive vice president of sales for American Advisors Group, or AAG, a lender that does only reverse mortgage loans.
Fiore suggests asking if the lender is a member of the National Reverse Mortgage Lenders Association, or NRMLA, checking for the lender's rating with agencies such as the Better Business Bureau and asking what the company's values are.

The answer is yes, you will still own the home after you get a reverse mortgage loan. But it might ease your mind to ask the question, anyway, when you talk with a loan officer.
"Borrowers still have this perception that if you get a reverse mortgage loan the bank is going to own your home," Fiore says. "And that's absolutely not true. It's no different than a traditional mortgage."
The lender can explain how a reverse mortgage loan will affect your heirs. It's a complex issue that is affected by whether you have a co-borrower, whether you are married to someone who is not a co-borrower, and whether the last borrower dies while living in the home or moves out permanently before then (perhaps to live in an assisted-living or memory care facility).
In most cases, says Reza Jahangiri, CEO of American Advisors Group, the borrower dies or moves out of the home while the home is worth more than the amount owed. Then the heirs can sell the house and bank the remaining equity. "Or they can refinance it and stay in the house or rent it out," Jahangiri says.
If the home is worth less than the reverse mortgage loan balance when the last borrower dies or moves out permanently, the heirs are not on the hook for making up the difference. They can sell the property for fair market value, pay off the loan with the proceeds, and any shortfall is covered by mortgage insurance.

A good reverse mortgage loan officer will be solution-oriented, Coffin says, asking what problems the borrower wants to solve with the loan proceeds.
"You look to see what their goal is, and how financially fit they are right now," she says. Typically, she asks prospective borrowers how their finances will change in the next couple of years. For example, do they plan to buy a car?
With these questions, the loan officer and the borrower can discuss whether it's a good idea to get a reverse mortgage loan, and if so, if now is the time or if it would be better to wait. They can discuss whether to get a fixed-rate or variable-rate loan, and which type of payout would be best: a lump sum, a line of credit, monthly payments or a hybrid of a line of credit and monthly payments.
When you get a reverse mortgage loan, you are required to maintain the home and pay property taxes and homeowner's insurance premiums. The lender can set up the reverse mortgage loan with a "set aside" to pay those costs. A set aside performs a similar function as escrow does in a traditional mortgage.

A reverse mortgage loan is more complex than a traditional mortgage because there are various ways to collect the proceeds (lump sum, line of credit, monthly payments or a hybrid of a line of credit and monthly payments). On top of that, you're required to talk to a certified housing counselor. Plus, the lender has to conduct a financial assessment of you.
"A reverse mortgage loan is a complex financial product, and you need to make sure that who you're working with is going to really help you understand how it works, and whether it makes sense for you, and if they take a consultative approach to the process with you," Fiore says.
He adds: "Are they going to walk me through the reverse mortgage, how it works and whether it makes sense for me? Or are they going to just try to get me to apply? Really strong lenders should have a very specific process they follow that helps consumers understand everything step by step."

You will want to know how much time will pass between application and funding of the reverse mortgage loan. The timing is partially under your control: You'll have to go through loan counseling, and it is up to you to select the counseling agency and schedule the appointment. The lender will provide you a list of approved housing counseling agencies, or you can search for a counseling agency on HUD's website.
After you have finished the counseling, you'll receive a certificate that expires after 6 months, Coffin says. If you wait longer than that, you can get a refresher course by the same counselor or another, and get another certificate that expires after 6 months.
Undergoing the counseling and getting the certificate does not obligate you to get a reverse mortgage loan.

Should you involve your offspring (or other potential heirs) into the discussion of whether to get a reverse mortgage loan? A reputable reverse mortgage lender not only will welcome your heirs to take part, but will support their participation.
"We encourage everybody who is involved in the process to bring in everyone involved," Fiore says.
Coffin says the heirs often get the ball rolling. About 20% to 25% of the time, she says, the adult children inquire about reverse mortgage loans on behalf of their parents.
After they learn the details of how reverse mortgage loans work, adult children seldom try to talk their parents out of getting one, Coffin says. "So often, when I engage in that conversation and start to speak with the children, they're very much on board with the program," she adds.

5 factors that help determine the size of a reverse mortgage loan

2016-11-18T12:03:00.006-08:00

A home equity conversion mortgage, or HECM, commonly called a reverse mortgage loan, can prove to be a windfall for seniors who have equity in their home.
With this type of mortgage, borrowers can extract equity, spend the money almost any way they want, never make a mortgage payment and continue to live in their home.

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What the heck is a HECM?

A home equity conversion mortgage, or HECM, is FHA's reverse mortgage loan program, enabling seniors to withdraw some of the equity in their home if they need money. These loans come with fees, including an origination fee that ranges from $2,500 to $6,000. The National Council on Aging's booklet, called Use your home to stay at home," offers more details.

The loan need not be paid back until the borrower sells the home, moves out for 12 months or longer, or dies, at which time the principal, fees, interest and mortgage insurance become due.
Heirs receive the right to buy the home for 95 percent of its appraised value.
So, how much money can you get with this type of mortgage?
The answer depends on multiple factors and is subject to various rules, limitations and guidelines, some of which have changed in recent years to limit how much equity homeowners can extract and spend.

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The maximum loan amount for a HECM is based on the home's appraised value, the applied interest rate, how the fees and payout are structured and the youngest borrower's age. Borrowers must be at least 62 years old, but a non-borrowing spouse can be younger.
Loan amounts are lower for younger borrowers and have lower rates, and they're higher for older borrowers and have higher rates, says Maggie O'Connell, reverse mortgage loan specialist at The Federal Savings Bank in Reno, Nevada.
"Because of low rates, you get more," O'Connell says. "If rates go up, you get quite a bit less because the balance is assumed to rise more rapidly over your lifetime. Older people get more because they have a shorter life expectancy."
For the most part, the upper limit for all HECMs nationwide is $625,000. Some lenders offer jumbo reverse mortgage loans that can cover homes valued at up to $6 million.

With all those factors, it can be difficult for homeowners to figure out how much they can borrow. Online calculators aren't always accurate or flexible enough to model each borrower's individual situation.
A good estimate for a 62-year-old homeowner at a current low rate is 50 percent of the home's value, says Eric Meehan, owner/broker of Golden Opportunity Mortgage, a reverse mortgage loan company in Solana Beach, California. For older borrowers, the loan amount increases a little bit for each additional year of the youngest borrower's age.
"If you have a $400,000 home, at age 62, ballpark, a good rule of thumb is that you will be eligible for around $200,000," Meehan says.

Borrowers aren't limited to a lump sum. Two other options are a line of credit or monthly payment that continues as long as the borrower occupies the home. Two or three options may be used in combination.
Greg Cook, vice president at Reverse Lending Experts in Orange, California, recommends the line of credit because the loan amount can be higher than the lump sum, and the credit limit rises annually at 1.5 percent, plus the interest rate.
Some borrowers choose the lump sum instead of the credit line because the lump sum has a fixed rate and the credit line's rate is variable, Cook says.
If the variable rate rises, the borrower's equity will shrink faster. The credit line's annual increase can help cushion this effect.

Homeowners who get a HECM can't have any other home loan or lien. That means any "forward" mortgage, home equity line of credit, contractor's lien, unpaid property tax or other obligation must be paid off from the HECM before the borrower receives any cash.
After that, the cash out is limited to 60 percent of the loan amount, plus an additional 10 percent of the 60 percent in the first year. This limit is intended to help borrowers manage their windfall.
If your existing loans and liens exceed your first-year limit, the limit can be waived. However, your upfront mortgage insurance premium will be substantially higher -- 2.5 percent instead of 0.5 percent of your loan amount.
If your loan exceeds your 60 percent plus 10 percent limit, you won't be able to get cash right away, but you will be able to eliminate your mortgage payment or other obligations against your home.
That should improve your cash flow, says Beth Paterson, certified reverse mortgage loan professional at Reverse mortgage loan SIDAC in St. Paul, Minnesota.
"Say your mortgage payment was $1,500 a month. You no longer have to pay that," Paterson says.

A reverse mortgage loan doesn't eliminate property taxes, homeowners insurance premiums or home maintenance and repair expenses. Those costs continue and must be paid, regardless of the HECM.
All HECM borrowers must complete a reverse mortgage loan counseling session and financial assessment.
Borrowers who've been unable to pay their property taxes and homeowners insurance during the prior two years may be subject to a life expectancy set aside, or LESA.
The LESA doesn't change the borrower's maximum loan amount. Instead, it sets aside a portion of the loan to pay the borrower's property taxes and homeowners insurance. That may reduce how much cash the borrower can receive.
The rules that determine whether a LESA will be required are very complicated.
"If you have to do the LESA, that money comes off the top regardless of the 60 percent, regardless of your mortgage, regardless of anything," Meehan says.

7 things to consider if you are interested in a reverse mortgage loan

2016-11-18T12:00:00.001-08:00

Is a reverse mortgage loan right for you?

Deciding to go through a home equity conversion mortgage means making a number of decisions.

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Don Graves, adjunct professor of retirement income at the American College of Financial Services in Philadelphia, suggests asking yourself two important questions:

"What is the problem I'm facing that is most worrisome to me?"
"What are the other possible solutions to meet that need?"

But there is much more to consider in making the decision to get a reverse mortgage loan.

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Pick a lender

The right lender can make the process easier. Joe Kurelick, a loan officer who covers the state of Georgia for American Advisors Group, recommends finding out how well a lender can explain the product.
"What's the history of the company they're with?" he asks.
Find out how long someone has been originating reverse mortgage loans and how many they have done.
"The majority are brokers -- they do forward and reverse, regular mortgages," Graves says.
You should feel comfortable with their level of experience.

Should you stay?

If your goal is to age in place, you'll want to factor in housing prices and cost of living. Is a new location affordable? There is a range of tax considerations (sales, state, local and property taxes), as well as how retirement income such as Social Security is impacted on the state level.
Staying in place might mean modifying your home to make it more accessible as you get older. Some people choose to pay these expenses using a reverse mortgage loan.

Or should you go?

Some people use a reverse mortgage loan to move to a new home or relocate to a new area.
The relative flexibility of a reverse mortgage loan can open options you didn't know you had.
"If they're going to do a purchase reverse mortgage, I'll bring in numbers to show them what it looks like," Kurelick says.

Longer lives

With life spans increasing, many people may live 20 to 30 years in retirement.
Everyone needs a solid plan for income retirement that factors in Social Security, an investment portfolio and other sources, such as income from rental property.
Calculate all your expenses for your basic living needs and compare them with the amount of income you can expect.

5 ways to turn home equity into retirement savings

2016-11-18T11:48:00.000-08:00

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Retirees are homeowners. Of those with more than $100,000 in savings, about 90 percent own a house, according to the LIMRA Secure Retirement Institute. Among those with less savings, a still-substantial majority -- 70 percent -- are homeowners.
The ability to access home equity can save a retiree from running short of money or being forced to sell stocks, bonds and other investments when the market for these instruments is bad, says Jamie Hopkins, co-director of the retirement income program at the American College of Financial Services.
"That is really going to improve a retiree's cash flow, especially for people relying on withdrawals from their savings because they don't have a pension," Hopkins says.
Try these five ways to get the most from your home equity to supplement your retirement savings.

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If you don't need that big family home anymore, retirement is a good time to put the old house up for sale and replace it with one that's more affordable. Making the right move means you could cut these bills:

Utilities
Taxes
Insurance
Maintenance

The cash you clear on the deal likely will escape income tax. Uncle Sam lets single homeowners exclude the first $250,000 of profit from capital gain taxes ($500,000 for a married couple filing jointly). That's a major benefit of homeownership.
Hopkins suggests you consider taking at least some of the windfall and buying an immediate annuity to guarantee yourself income you can't outlive.

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Citing U.S. Census Bureau data, Finder.com estimates that there are 33.6 million spare bedrooms in the United States. At $100 per week in rent -- cheap in many areas of the country -- an entrepreneurial retiree with unused space could gross $5,200 in annual additional income.
"Whether you are the Golden Girls or the Odd Couple, sharing your home could help reduce costs and improve enjoyment of life," says Catherine Collinson, president of the Transamerica Center for Retirement Studies. "I see this as a really nice opportunity."
With rents so high for regular apartments and even studios, co-living arrangements are becoming more common. Be sure to do your homework before allowing a boarder into your home.

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A traditional home equity line of credit, or HELOC, can pay for remodeling or cover other home-improvement costs in preparation for stopping work and selling the house -- or staying put.
"Tapping this kind of credit a year or two before you retire can be a good plan as long as you can pay it back before it becomes burdensome," Hopkins says. "But if you have to spread the payments out over 15 or 20 years, then you are better off looking at a different financing plan that doesn't include a risk that you'll be strapped for a long time."
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In this cozy arrangement, parents sell property to an adult child or to a specially designed trust for the long-term benefit of the younger generation and then lease the property back. The parents get:

Tax-free cash or out from under the mortgage.
A place to live.

The purchasers get rental income that, for tax purposes, is generally offset by related business expenses.
"It's a great option in the right situation. It isn't going to be the solution for everyone, but when the parents want to leave the home as a legacy but are a little tight on income a sale-lease back is good way to go," Hopkins says.

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Reverse mortgage lines of credit are available to borrowers 62 and older who have equity in their homes. They can draw on the equity when they need it, and no payback is required until they die or move away. For these reasons, the house can be a great resource when retirement savings runs low.
"The line of credit grows over time. It doesn't have any required monthly principal and interest payments, and it doesn't have a predefined maturity date," says Joseph Demarkey, strategic business development leader at Reverse Mortgage Funding, a national reverse mortgage lender.
Far more people qualify for a reverse mortgage than for a loan to buy a home, he says, because borrowers don't have to be able to afford principal and interest payments. "We only underwrite for taxes and insurance."
The American College's Hopkins, who is also an attorney, says, "Reverse mortgages used to have a bad reputation, but the government has shut lenders' ability to sell reverse mortgages to people who can't afford them. Used strategically, it can be a very good tool."

5 biggest advantages of reverse mortgage loans

2016-11-18T11:37:00.004-08:00

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For cash-strapped retirees or those looking for a second source of income a reverse mortgage loan can be the way to achieve their goals.
Sure, this type of mortgage product has gotten a bum rap over the years, due to the sometimes high costs associated with it. But increased regulation in the past few years has made it a much more viable option for lots of homeowners.
"It's not for everybody," says Richard Mandell, chief executive of San Diego-based One Reverse Mortgage. "But for people looking for immediate cash-flow savings, it can be."
A reverse mortgage loan, also known as a home equity conversion mortgage, or HECM, is a type of home equity loan geared toward people 62 or older.

What the heck is a HECM?

A home equity conversion mortgage, or HECM, is the Federal Housing Administration's reverse mortgage loan program, enabling seniors to withdraw some of the equity in their home if they need money. These loans come with fees, including an origination fee that ranges from $2,500 to $6,000. The National Council on Aging's booklet, "Use your home to stay at home," offers more details.

It doesn't require monthly mortgage payments, but borrowers do have to pay their homeowners insurance, taxes and maintain their home.
The loan is repaid after the borrower dies or moves out. Borrowers can get the money from the reverse mortgage loan in one lump sum, as a line of credit, or get it paid out monthly.
Rewind a decade and reverse mortgage loans were considered an option of last resort. But these days, with people easily living more than 20 years in retirement, it's becoming more of an income planning tool for some and a lifeline for others.
With that in mind, here are four positives associated with a reverse mortgage loan.

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In a perfect world, everyone would sock away enough money to live out their golden years in the lifestyle they were accustomed to during their working lives.
The reality is that many Americans are woefully unprepared for retirement. According to the Economic Policy Institute, working age couples saved only around $5,000 on average for their retirement.
What's more, nearly half of families have no retirement savings at all. For those lucky enough to have equity in their homes, a reverse mortgage loan can help with cash-flow problems when they stop working.
"For a person looking for an immediate cash-flow savings, a reverse mortgage can be huge," Mandell says.
Since there is no mortgage payment from the reverse mortgage loan, the money borrowed can be used to pay down debt, eliminate other reoccurring payments and enhance the lifestyle of the borrower.
"For people who are living in retirement and find they are just getting by on a monthly basis by cutting back on things they enjoyed, working with a reverse mortgage is almost priceless," adds Reza Jahangiri, chief executive of American Advisors, the Orange, California-based reverse mortgage lender.
"What it does is create a lifestyle benefit that's hard to quantify," Jahangiri says.
It also gives people who aren't struggling but can't afford to pursue their retirement bucket-list options. With the extra cash, they can travel or pursue activities they had dreamed about doing.

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When it comes to reverse mortgage loans, many people incorrectly believe they can't have a mortgage to take advantage of the product.
But according to the National Reverse Mortgage Lenders Association, more than half of all borrowers use part of their loan proceeds to pay off an existing mortgage or credit line, says Jenny Werwa, a spokesperson at Washington, D.C.-based National Reverse Mortgage Lenders Association, the industry trade group.
"Since reverse mortgage loans do not require monthly mortgage payments, and are instead repaid at the end of the loan, borrowers are able to reallocate those funds to meet other needs," she says.
In lots of cases, eligible homeowners will use the proceeds from a reverse mortgage to settle their existing mortgage debt or home equity line of credit, and use the remainder of the reverse mortgage loan as a line of credit.
Unlike a home equity line of credit, or HELOC, the line of credit can't be frozen or reset. By using a reverse mortgage loan, people get rid of what is typically their largest bill -- the monthly mortgage payment.
It also can help relieve the burden on those who are helping cash-strapped seniors get by.
"A lot of times, it benefits the heirs who may have been helping their parents with their monthly obligations," says Jahangiri of American Advisors Group. "The reverse mortgage frees up cash that can go to some of those monthly expenses that are being taken on by the adult child."

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For many people age 62 or over, one of their main sources of retirement income will be Social Security benefits.
Unfortunately, many start collecting Social Security at age 62, and therefore do not receive their full retirement benefit.
That's because for every year you delay taking Social Security, the bigger your benefit. According to the Internal Revenue Service, depending on how much a person earned, the increase could be 6 percent to 8 percent per year.
Delaying the collection of Social Security may not seem like an option, particularly for people on a fixed income, but that's where a reverse mortgage loan can help.
Mandell of One Reverse Mortgage says retirees can use a reverse mortgage loan to access cash, enabling them to refrain from tapping other retirement sources of income.
Retirees in a 401(k) plan have to pay taxes when they begin drawing down on their retirement savings. A reverse mortgage loan can delay that, and thus the tax bill owed to Uncle Sam.
"Depending on what the retirement plan looks like, there's a few different ways to use a reverse mortgage to extend the life of retirement savings," Mandell says.

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One of the byproducts of the Great Recession and the record foreclosures of nearly a decade ago is that new regulations are now in force to protect unwitting borrowers from getting a product they don't understand.
After all, it was all those complex financial products and mortgage options that got many people into trouble during the housing boom and subsequent meltdown.
Take adjustable-rate mortgages, or ARMs. A few years ago, many borrowers took out low-interest ARMs, not realizing that the loans eventually reset and their payments double. That led to an avalanche of foreclosures.
With reverse mortgages, borrowers are required to undergo counseling with an independent third-party HECM counselor who goes over the features of the reverse mortgage loan and the borrower's responsibilities.
"During the counseling session, the borrower/co-borrowers or non-borrowing spouse will learn about the different loan product options and the costs, discuss their household budget and expenses, and talk about alternatives to a reverse mortgage," says Werwa of the National Reverse Mortgage Lenders.
"HECM counselors follow a strict HUD (U.S. Department of Housing and Urban Development) counseling protocol that details the information to share with the borrower and also comprehension questions the borrower must be able to answer to receive their counseling certificate, which is a loan requirement," Werwa says.

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These days, retirement can easily last more than 20 years, which can strain cash flow, even for people who saved enough for their golden years.
Add unexpected medical events to the mix and all of that planning can be meaningless. With many people worried that they may outlive their retirement savings, a reverse mortgage loan can not only give them peace of mind, it also can help them accumulate cash, Mandell says.
He says that's because if retirees take out a line of credit from a reverse mortgage loan and don't draw down on it, the amount of unused money will increase every year.
"You may start out with a $100,000 line of credit and 15 years later, it may be worth $300,000," he says. "One of the unique features of the product is any unused portion will increase in value over time."
A reverse mortgage line of credit grows at the same rate at which the loan accrues interest.
"The reverse mortgage is probably one of the most misunderstood programs out there, but when most people who don't understand how it works learn about it, the most common thing they say is, 'Why doesn't everybody get one?'" Mandell says.

Best and worst ways to use a reverse mortgage loan

2016-11-18T11:33:00.000-08:00

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Reverse mortgage loans allow seniors to borrow against the equity in their home and get a lump sum, line of credit or monthly payments as long as they own and occupy their home. The opportunity is attractive to many.

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But is it smart?
The answer depends largely on the homeowner's personal financial situation. What's smart for some might not be so for others. Still, experts say there are many uses that make sense in at least some situations and only a few uses that almost never make sense in any situation.
"It's in the eyes of the beholder, almost, as to what's a good or bad reason," says Eric Meehan, owner/broker of Golden Opportunity Mortgage, a reverse mortgage loan company in Solana Beach, California.
Below are ways to use, and not use, a reverse mortgage loan.

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Almost all reverse mortgage loans today are Home Equity Conversion Mortgages, or HECMs.

What the heck is a HECM?

A Home Equity Conversion Mortgage, or HECM, is FHA's reverse mortgage loan program, enabling seniors to withdraw some of the equity in their home if they need money. These loans come with fees, including an origination fee that ranges from $2,500 to $6,000. The National Council on Aging's booklet, called "Use your home to stay at home," offers more details.

Changes in HECM rules in recent years have made it harder for seniors to use these loans to strip all the equity out of their homes and leave themselves without the means to pay their property tax and homeowners insurance.
While the newer rules can be protective, they don't guarantee a HECM is appropriate for every senior homeowner.
It's important to remember that while a HECM doesn't require monthly payments, you'll have to repay your loan if you sell your home or move out for 12 months or longer, including any fees, accumulated interest and mortgage insurance premiums.
Reverse mortgage loans also can be challenging for non-borrower spouses, adult children and others who live in the home or might expect to inherit it.

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Perhaps the most common use of a reverse mortgage loan is to pay off an existing home loan or line of credit, or to pay off or pay down other debt, such as credit cards, a car loan or medical bills.
"Sometimes, something happens and (seniors) do run up credit card debt and start struggling to figure out how to pay that as well as living expenses. The reverse mortgage loan can help," says Beth Paterson, certified reverse mortgage loan professional at Reverse mortgage loan SIDAC in St. Paul, Minnesota.
Paying off other home loans or consumer debt with a HECM eliminates the need to use current income to make those monthly payments.
"You free up (cash) and increase your monthly income," Meehan says.
Still, there are limits as to how much this strategy can help, says Greg Cook, vice president at Reverse Lending Experts in Orange, California. If the reverse mortgage loan is "a drop in the ocean" in debt repayment, the senior might be better off selling the house, he says.

Seniors can also use a reverse mortgage loan to supplement their income to enhance or maintain their lifestyle, such as after they retire or their spouse dies, Paterson says.
That might mean paying for necessities like medical services, home medical equipment, at-home care, dental work, home repairs or aging-in-place modifications. Or, it could mean paying for discretionary expenditures like buying new clothes or frequenting a beauty salon.
"Seniors want to stay in their home and be able to travel and go out to dinner with friends," Paterson says.

Financial planning is another potential use of a reverse mortgage loan.
Strategies include:

Setting up a credit line for later use, if needed.
Preserving other assets to use later or to leave to heirs.
Delaying Social Security benefits.
Lowering income earned from other sources to avoid paying income tax on Social Security benefits.

Maggie O'Connell, reverse mortgage loan specialist at The Federal Savings Bank in Reno, Nevada, explains, "If your income's over a certain amount, part of your Social Security gets taxed. If instead you're drawing from your HECM, which isn't taxable, you can keep (your income) under that threshold."

Gifting money to younger generations to help them pay off student loans, make a down payment to buy a house or for other reasons can be another use of a reverse mortgage loan.
"If their intent is to leave the property, what they actually leave is the equity, so why not gift it?" Cook says.
O'Connell says using a reverse mortgage loan as gift money can be smart if it doesn't put the borrower at risk of running out of money during his or her own lifetime.
If the equity in your home is "pretty much all you have on a low income," you should be cautious "not to give it away too readily," she says.
By the way, many seniors get a reverse mortgage loan and don't tell their adult children about it.

A reverse mortgage loan also can be used to sell a home and purchase another. That can be helpful for seniors who want to downsize or relocate closer to their family or friends. The new home can be larger or smaller and more expensive than the sold home.
Couples who divorce can use his and hers reverse mortgage loans to help them sell their current home and purchase individual homes that fit their separate needs, Cook says.
"Say they have to sell the house and they're each going to net $300,000. They can each buy a $600,000 house because they only need to put 50 percent down and they can have a reverse mortgage loan for the other 50 percent," he says.

One use of a reverse mortgage loan that's generally frowned upon is to purchase an annuity, a form of insurance that provides a monthly payment for the rest of a person's lifetime in exchange for a substantial upfront premium.
Paterson says that there are some "pretty strict restrictions" on this strategy and that seniors "need to really go in with their eyes open in making sure" it benefits them before they do it.
Meehan concurs.
"You should not borrow money to invest in financial products," he says. "Taking it and going to Las Vegas might not be such a good idea, either."

5 ways to turn home equity into retirement savings

2016-11-18T11:26:00.000-08:00

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Tax-free cash or out from under the mortgage.
A place to live.

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7 times a reverse mortgage loan can save your retirement

2016-11-18T11:11:00.001-08:00

Don Graves calls reverse mortgage loans the "Swiss army knife of retirement income planning."

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Graves, an adjunct professor of retirement income at the American College of Financial Services in Philadelphia, says the loan can be used strategically to address a range of retirement situations.
Unexpected illness or inadequate savings are just two of the times a reverse mortgage loan can be a true lifesaver -- or retirement-saver.
But other situations can also benefit from a reverse mortgage loan.

The person who heads into retirement with inadequate savings may well have been paying off a mortgage over the decades. Take the homeowner whose home, valued at $250,000, has a $50,000 lien, says Reza Jahangiri, CEO of American Advisors Group in Orange, California.
A scant retirement account of $30,000 or $40,000 will be inadequate to sustain a person through decades of retirement.
When a home represents the bulk of a homeowner's portfolio, a reverse mortgage loan is a way to create more money. Additionally, the loan can prevent the IRA or 401(k) from becoming a depleting asset they're forced to draw on more quickly.

Aging in place can be something of a puzzle. You want to make some modifications to make it easier to stay in your home, but the best source of cash is in the house itself.
Even if you have 401(k) assets, you may not want to draw on those for home repairs or remodeling, whether installing ramps and rails in a bathroom or making the kitchen more user-friendly.
Opening a line of credit through a home equity conversion mortgage, or HECM, gives you a way to tap home equity while leaving the 401(k) untouched so it can be used as intended -- for life in retirement.

The need for cash sometimes keeps people in their 70s in the workplace. They depend on that extra few hundred a week to help boost scant retirement income and meet expenses. "People who are house-rich and cash-poor," Jahangiri says.
A reverse mortgage loan could provide extra money each month as it eases the burden of paying the mortgage on a home. The necessity of working is eliminated, and older homeowners can remain in their homes.

When home equity is the biggest asset, a reverse mortgage loan can be used to meet unanticipated expenses.
For example, a widow or one spouse in a couple is losing mobility and needs in-home care, but isn't sick enough to need an assisted living facility or a nursing home. Medicare does not entirely cover the costs of partial in-home care and assorted other out-of-pocket costs.
People with meager retirement savings but home equity can use the house to create cash flow.
The homeowner can tap into a line of credit, either taking the payments as a lump sum or in monthly payments, similar to an annuity stream.

Even when people have saved diligently and planned for retirement, a reverse mortgage loan can still play a part in the overall strategy.
"Use the reverse mortgage loan depending on market conditions," Jahangiri explains. "When the markets are doing well and they're getting good returns (on a retirement account), they can use their gains to pay for their retirement. When the market is not doing well, they can use the proceeds from the line of credit in the (reverse mortgage loan)."
This is a way of hedging on market conditions, according to Jahangiri. At the same time someone can stay in their home longer, they also have more freedom not to draw on retirement funds in a down market.

One person's reverse mortgage loan success story

2016-11-18T11:07:00.001-08:00

Photo courtesy of Lisa Mayo

Before Lisa Mayo got a reverse mortgage loan, she did her homework, just as you might be doing.
She is 68 and got a reverse mortgage loan four years ago on her Tudor-style house in West Covina, California.
Mayo is glad she got a reverse mortgage loan, and there are some things that she thinks you should know before you get one.

Why she got a reverse mortgage loan

"It wasn't so much for my living expenses; it was more for the things that I wanted to accomplish with my life," Mayo says.

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She is an actor, producer, director, writer and teacher, and wanted to keep pursuing those passions.
"I really wanted to continue with my plan to help kids and to be able to produce shows and pay the actors who come in and help me with what I wanted to do when teaching teens and young adults."
She took a lump-sum reverse mortgage loan and "put my money away so I can do other things with it. If I wanted to produce a show, then I could take my money out that way."

Advice on spending

Lyn Coffin, a reverse mortgage loan officer for Mortgage Network in Danvers, Massachusetts, notes that there aren't restrictions on how the proceeds of a reverse mortgage loan can be used.
"I like to allay those concerns upfront," Coffin says. "There aren't really any restrictions" as long as you live in the house and pay property taxes and homeowners insurance.

On the other hand, reverse mortgage loan lenders stress the importance of spending the money responsibly, says Reza Jahangiri, CEO of American Advisors Group, or AAG, a lender that does only reverse mortgage loans.
"We want to make sure the seniors understand that once they get the reverse mortgage loan, just as if they had gotten a cash-out refi or a home equity line, not to go spend all of those proceeds in a discretionary way," Jahangiri says. "It's not to go get five trips to Europe or go to Las Vegas and blow the money."

Her daughter's role

Mayo was the sole borrower.
She has a daughter, who doesn't want to own the house one day.
"I knew that my daughter would not live in my house, and what was the point of me having this house if she was not going to live in it? So I thought, well, instead of her spending my money, why don't I spend my own money?" she says with a laugh.

“I knew that my daughter would not live in my house. ... I thought, well, instead of her spending my money, why don't I spend my own money?”

That conclusion was informed by her volunteer work for hospice. She "realized that all those things that all these people that are passing on are cherishing, are no value to anybody else other than the person that's passing on."
Mayo informed her daughter of her plan, and her daughter was fine with it.
Reverse mortgage loan lenders say it's a good idea to involve your offspring, even before applying for the loan.
"We encourage everybody who is involved in the process to bring in everyone involved," says Paul Fiore, executive vice president of sales for AAG.

Advice to prospective borrowers

Mayo has friends in their 80s and 90s, and when the subject of reverse mortgage loans comes up, "I just want them to go for it -- to go ahead and use the money if they want to travel or if they want to do things," she says.
"Live in the now. Don't save it for somebody else who's not going to really value or appreciate it."

Photo courtesy of Lisa Mayo

When her friends say they don't have enough money to do what they want, "I go, like, 'If your house is paid for, or you've only got a few more dollars to pay it off, just go ahead and not worry about paying the house anymore. Just as long as you pay your insurance and your taxes, then use that money for something else."
Again, her volunteer work for hospice guides her philosophy about seizing the day. "The last thing that anybody should ever do is regret what they haven't done, and just leave it for their children."
Once you get a reverse mortgage loan, here's Mayo's advice: "Not to spend it all in one place."

The loan process

After doing a lot of online research, Mayo applied for a reverse mortgage loan from AAG. She says she kept asking her loan officer variants of the same question over and over: If she got a reverse mortgage loan, would she be signing away her house? The answer is "no," but she needed to hear that repeatedly.
"I wanted to make sure I was making the right decision, for one thing, and my fear was that somebody would take away my house," she says. "What if I got sick and my daughter wouldn't be able to pay it? So those were the concerns that I had. And he kept reassuring me. I admired him so much because he was so patient with me, and so very kind."

“I admired (the loan officer) so much because he was so patient with me, and so very kind.”

She completed the required housing counseling.
It didn't make a strong impression: She thinks the counseling was conducted over the phone. Her memories of the conversations with the loan officer are more vivid.

Having the reverse mortgage loan

The proceeds of the reverse mortgage loan continue to give Mayo the flexibility to produce plays for teens and young adults on the subject of domestic violence.
And she gets to remain in her home.
"I love coming into my house and saying, 'This is mine,'" she says. "I have a beautiful home, I have a beautiful pool, I have a beautiful view, I live up in the hills."

“I love coming into my house and saying, 'This is mine.'”

5 ways to turn home equity into retirement savings

2016-11-18T11:06:00.000-08:00

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Top 10 investing tips for 2017

2016-11-18T11:02:00.001-08:00

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1. Hold your own year-end review

We're coming to the end of the year, a good time to pretend you're a corporation and check your financial performance. Review your current portfolio and see if you need to adjust anything to keep your investments in line with your goals and objectives.
"Has there been a life event that changes the way you want your portfolio to work?" asks Thomas J. O'Connell, president of International Financial Advisory Group in Parsippany, New Jersey. A birth, death, retirement or a family member entering college can all have an impact on how you should invest during the new year.

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2. Resolve to learn something

If you're one of those people who thinks, "I have no idea how bonds work" or "What the heck is an ETF?" it's time to educate yourself.
You don't have to be Warren Buffett to gain a reasonable working knowledge of investments and retirement rules.
Just choose a couple of things you know you don't understand and make it a goal to learn something about them. For instance, you might want to look up the difference between mutual funds and exchange-traded funds, because if you think 2017 will be a good year for the stock market, it may be the year for putting some ETFs in your portfolio.
Or, maybe it's about time that you understood the relationship between bond prices and interest rates.

3. Know your tolerance for risky business

Say the market drops, and you look at your balance and it's lower. "That's going to happen," says Will Branch, investment analyst for MillenniuM Investment & Retirement Advisors in Charlotte, North Carolina. If the mere thought makes you feel ill, imagine it really happening.
You might need to take some risk off the table. Branch recommends this rule of thumb to make your allocation more comfortable: Whatever your age is, take that number and use it as a percentage of your total holdings for safer, fixed-income investments like bonds.

4. Read up

Top tip for investing? Read, says Ethan Braid, a founder of HighPass Asset Management, a fee-only investment advisory firm in Denver. If Bill Gates can read 50 books a year, you can read six, he says.
Braid recommends several titles: "The Most Important Thing" by Howard Marks; "Stocks for the Long Run" by Jeremy Siegel; and "The Warren Buffett Way" by Robert G. Hagstrom.
Reading gives you a good foundation, a process to think about retirement and a way to view the world of investing, Braid says. "If a layperson could just accomplish 10 percent of what a Bill Gates does, you could really make a difference in your life," he explains.

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5. Know that interest rates will probably rise

Many experts will tell you that today's rock-bottom interest rates will probably rise. At least a bit. If they do, two areas can challenge investors: bond duration and adjustable-rate loans.
"You'll want to switch to shorter-duration bonds," says David Fleisher, CEO at Firstrust Financial Resources in Philadelphia. He explains that they're generally less sensitive to rising or falling interest rates than those with longer durations. And, if you hold a mortgage or other loan with an adjustable rate, you can expect your costs to rise.
If rates do go up, take heart. "It's because economic growth is on the right track, unemployment is low and the economy is on the path to a solid recovery," says Omar Aguilar, chief investment officer of equities at Charles Schwab in San Francisco. "I think the markets will respond very positively."

6. But rates may not budge

Even without an increase in interest rates, bonds are still important part of your portfolio, offering risk control and diversification says Karyn Cavanaugh, senior market strategist at Voya IM in Charleston, South Carolina.
So, invest in multi-sector bonds, which diversify their assets among several fixed-income sectors, including U.S. corporate bonds, foreign bonds and high-yield U.S. debt securities. "(These) do well in flat markets when rates aren't raised at all," says John Moninger, managing director of retail at Eaton Vance in Boston.
Also consider a bond ladder, a portfolio of fixed-income securities with different maturity dates. This helps minimize interest rate risk, and can help generate income even when rates are stalled.

7. What are you losing to fees?

In a workplace retirement plan, your investment fees should be plainly stated, but in many IRAs or after-tax brokerage accounts, you may have to look harder. Braid, of HighPass Asset Management, recommends carefully reviewing every statement.
Shifting to ETFs can be a way to reduce total expenses, because the fees are lower, says Kevin Stophel, a financial adviser with Kumquat Wealth in Chattanooga, Tennessee. The change can cut your fees by as much as a full percentage point, in some cases.

8. Don't dis cash

Stophel recommends reconsidering cash as a specific asset class, because he says stocks are flying too high. "The debt-to-equity ratio is at a value above where it was before the Great Recession," he explains. Amid low interest rates and expanded debt on company balance sheets, market valuations may be out of line with realistic future earnings.
In other words, it's not a bad time to be conservative. Remember: "Only bet what you can afford to lose," Stophel says.
In even simpler terms, we're long overdue for a market correction after seven years of a bull market.

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9. Master your emotions

People make the worst decisions when they're under duress. "If the market's dropped 600 or 1,000 points, you might as well just stay in and ride it out," says Branch, of MillenniuM Investment & Retirement Advisors.
People who were in stocks in 2008 and rode out the crash by staying in did well over time, he says. "(The market) did bounce back. People in their 20s who are investing through a workplace plan should realize they're buying their stocks on sale." People who are closer to retirement need to make a plan and stick to it.

10. Review your investment mix

When was the last time you looked at how your money is allocated? People often make investment choices and then do nothing for years, even decades, says Earle Allen, a partner with Cammack Retirement in New York.
If that's your case, Allen recommends reviewing periodically -- once a year is adequate. "Make sure the allocation mix still makes sense for (your) current life situation," he says.

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10 top credit card tips for 2017

2016-11-18T10:58:00.000-08:00

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Smart credit card use means more than paying your bills on time. It also means protecting yourself from fraud, using rewards to your benefit and allowing your plastic to help build your credit score.
Here are 10 tips to help you accomplish all of these goals in 2017.

1. Have patience with the chip card rollout

There is good news on the horizon for anxious credit card shoppers: In 2017 you won't have to ask as often, "Do I dip or do I swipe?"
Fewer than half of all retail merchants today are able to process chip-based credit and debit cards, as the rollout of chip-enabled payment terminals has been much slower than anticipated. That's why you're still using the magnetic stripe on the back of your card to pay at many retailers.
But global payments consulting firm The Strawhecker Group says you'll be dipping at 62 percent of all retailers by March 2017; acceptance of EMV (or Europay, MasterCard and Visa) chip cards throughout the year will gradually climb to 90 percent.
This is all in the name of fraud protection. Chip-based credit cards make it much harder for the bad guys to use your credit card information for in-store fraud.
So have a little patience during this continued transition.

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2. Be wary at the gas pump

While in-store fraud should fall as a result of the EMV switch, that's not the case at gas stations, which largely haven't converted to chip-enabled terminals. Just as merchants faced a deadline to switch from swiping to dipping, gas stations must do the same by October 2017 or they will be liable for any fraud committed at their terminals.
For now, though, there still are risks to paying at the pump, as gas stations throughout the country have been victimized by crooks who place difficult-to-detect skimmers on top of existing credit card readers to capture customers' card information.

Here's how to protect yourself:

Use pumps that are closer to the gas station convenience store. Criminals tend to install skimmers on out-of-the-way pumps.
Pay inside rather than at the pump.
If you must use the card reader at the pump, use a credit card and not a debit card. If the credit card is skimmed, you'll face no liability with the card company -- and you won't risk having money stolen from your bank account.

3. Check statements and your credit report

Even if you avoid risks -- like swiping at the pump -- you should remain vigilant against fraud. That means checking your monthly credit card statements and regularly looking at your credit reports.
Your statement will reveal signs of fraud, such as whether a criminal took your existing credit card number and used it to make illicit purchases. If you find an unusual charge, contact your credit card company immediately.
Your credit reports will reveal whether someone used your personal information to open new accounts in your name. If you find a credit card, mortgage or other account on your credit report that doesn't belong to you, contact the creditor immediately.
You are entitled to a free credit report from each of the three major credit bureaus once a year. You can get the report at AnnualCreditReport.com. Stagger the requests so that you're looking at a new credit report once every four months.
FREE CREDIT REPORT: You can review your TransUnion credit report for free at any time with myBankrate.

4. Set up mobile alerts

If you're not the type of person who is disciplined enough to regularly check your credit card account, you can automate the fraud detection process. Many large issuers now will let you set up mobile alerts that will alert you:

When you're approaching your credit limit.
If the card company detects unusual activity, like spending that doesn't fit your usual pattern, or transactions in unusual or unfamiliar locations.
When your card has been used. You can set this for large purchases, all purchases or anything in between.

5. Freeze your credit

In other countries that have adopted EMV credit cards, in-store fraud lessened, but application fraud increased. Expect that in the U.S., too.
Thwarted from using stolen credit card numbers to commit crimes, thieves will turn to using personal information stolen in other breaches to open new credit accounts in your name.
You can catch this type of fraud by regularly checking your credit reports. But that will only identify fraud that has already occurred.
You can prevent new-account fraud by freezing your credit. When you order a credit or security freeze, you tell the major credit bureaus that you don't want anyone looking at your credit file.
Most reputable lenders won't open an account without first pulling your credit, so this should prevent most application fraud.
It means the bad guys can't open a credit card in your name. Of course, neither can you without a temporary or permanent thawing of your file.

6. Pay off high-interest debt

After you've thoroughly protected yourself from fraud, it's time to start looking at how you actually use your credit cards.
Do you frequently carry a balance? Now's the time to get that under control.
The Federal Reserve has been extremely cautious about raising interest rates but has indicated short-term rates could be raised by a half percentage point or more in 2017.
That will impact what you'll pay to finance credit card debt, as credit card companies are likely to raise rates in tandem with the Fed's actions.
The credit bureau TransUnion recently calculated that if the Fed boosts rates by a quarter percentage point, 82 percent of consumers with a variable-rate credit account would see their monthly payments increase by less than $10. A much smaller percentage of consumers could see monthly payments increase by $50 or more.
Further rate hikes would increase monthly minimums, causing "payment shock" for some, according to TransUnion.
The lesson: Start paying down credit card debt now before a rate hike takes a bite.

7. Get a rewards card now

Credit card companies are engaging in a fierce battle for your loyalty, meaning it's a good time to take advantage of sign-up bonuses.
In October, JPMorgan Chase reported a 35 percent increase in new credit card accounts for the quarter. No doubt, the popularity of the Chase Sapphire Reserve card helped drive that growth.
New cardholders can snag a 100,000-point bonus and generous travel rewards, including an annual $300 travel credit. The card comes with a hefty $450 annual fee, but that has done little to turn off consumers, who flocked to grab the card.
It's unclear, though, how long this bonanza can last, as the major issuers are coping with income losses.
If you spot a deal that's right for you, snag it now.

8. Use the right card

Rewards are only good if you use them. If you don't travel much, the Sapphire Reserve card is probably not a good fit.
Consumers leave millions of rewards points and miles unused every year. A recent survey found that 58 percent of Americans say using a card to earn travel rewards is smart, but just 15 percent have ever paid for all or part of a trip using rewards points.
If this is you, consider a rewards credit card that pays you cash-back instead.
And if you carry a balance -- as about half of Americans do at least occasionally -- a rewards card may not be the right fit at all.
In that case, you should seek a credit card with the lowest interest rate possible. Rewards cards, which tend to have higher interest rates, probably don't fit the bill.

9. Mind your credit score

If you regularly carry a balance, that could have a negative impact on your credit score, even if you make on-time payments every month.
That's because your credit utilization -- how much credit you use versus how much total credit you have available -- counts for about 30 percent of your FICO credit score.
The lower the utilization the better, but if you regularly carry a balance -- especially one that puts you at or near your credit limit -- that could damage your score.
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10. Ask for a higher credit limit

If your credit score could use some help, here's a simple way to boost it: Ask your credit card company to raise your credit limit.
A recent Bankrate survey found that eight in 10 U.S. credit card holders who asked for a credit-limit increase were approved. But just 28 percent of cardholders had ever bothered to ask.
A higher limit could help your score because it would boost your available credit, lowering your utilization in the process.
But this only works if you don't use that additional credit available to you.