Reverse Mortgage Helps Seniors Face Retirement Income “Shocks”

More baby boomers are facing retirement surprises than may first be evident. Across the nation, 10,000 boomers retire every day, and nearly two-thirds of them have not made any financial plans for their retirement. There are several tools that are available for seniors to help minimize

A reverse mortgage is among the tools available to seniors that can be used to help minimize the damage caused by retirement income “shocks”, writes author John F. Wasik in a Forbes magazine article published in the August 14, 2017 edition.

Some of these “shocks” can include paying off student loans for children, divorce, needing to assist aging parents with care costs, and loss of employment, among others. According to the National Endowment for Financial Education, it’s a high probability that many seniors will face a major loss of income sometime during their retirement.

Watch a CNBC report on reverse mortgages.

Professor Teresa Ghilarducci told Forbes, “People want to believe that ‘it won’t happen to me’. “Truth is that almost no one is safe from these shocks, and low-income individuals are disproportionately affected.”

The report from the National Endowment for Financial Education, 96% of men aged 66 to 70 have experienced at least four “shocks”.

But there are ways to survive a shock, Wasik writes, including the use of home equity by using a reverse mortgage.

“When retired, you may be able to get a ‘reverse’ mortgage that will pay you a monthly income — if you qualify,” the Wasik article states.

A reverse mortgage allows some seniors to access the cash equity they have accumulated in their home to cover monthly financial shortfalls. The amount of available monthly income will vary with the senior’s age and the home’s available equity being the two primary determining factors.

If you’re a senior and interested in finding out all the facts about how a reverse mortgage could help you supplement your monthly income, click here and request a call; I’ll be happy to visit with you.

Top 10 Things You Should Know About Reverse Mortgages (1 of 10)

Definition of Reverse Mortgage

The reverse mortgage is a finance tool developed to provide seniors with additional retirement options to maximize their income. Many misnomers have circulated about the reverse mortgage and unfortunately continue spreading almost as rapidly as the marketing broadcast designed to motivate seniors to inquire.

Top 10 Things the Government Wants You to Know About Reverse Mortgages

I’ll write about the top 10 things seniors should know about reverse mortgages over the next 10 blog posts. The basis for this information is taken from the FHA.gov website and every attempt has been made to not embellish the information either positively or negatively. These are Federal Government Insights and are the final word when considering a reverse mortgage.

FEDERAL GOVERNMENT TRUTH #1 – DEFINITION OF REVERSE MORTGAGE

What is a reverse mortgage?

A reverse mortgage is a special type of home loan that allows seniors to convert a portion of the equity in their home into cash. The equity seniors have built up over the years of making mortgage payments can be paid to them in a variety of ways that help them maximize their retirement income. These loans are also referred to Home Equity Conversion Mortgage (HECM).

Traditional home equity loans or second mortgages, require the borrowers to repay the loan, usually in monthly payments. HECM borrowers are not required to repay the loan until all borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. The obligations of the mortgage are: a) maintain adequate property insurance to cover the loss of the home, b) pay annual property taxes, c) keep the home maintained and in good working order, and d) the property must be occupied by one or more of the borrowers as their primary residence.

A reverse mortgage may also be used to purchase a primary residence. If the borrowers are able to use cash on hand or equity from the sale of their current home to pay the difference between the HECM proceeds and the sales price plus closing costs for the property they are purchasing. The reverse mortgage works the same on a purchase as a refinance; the borrowers have no required monthly mortgage payment helping them to maximize their retirement reserves.

Next: FEDERAL GOVERNMENT TRUTH #2 – Who Can Qualify for a HECM Reverse Mortgage?

Baby Boomers Haven’t Saved Enough for Retirement

There are about 10,000 baby boomers turning 65 per day. If you’re a baby boomer who is quickly approaching retirement, you might be wondering whether or not you’re on track with your retirement savings. Another way of stating the obvious; will you outlive the money your’ve saved for retirement?

Your situation is different from every other person, but sometimes it helps to see the numbers of what other boomers have tucked away for their retirement.

The Real Numbers

According to a recent PWC survey, baby boomer retirement savings vary widely, but roughly half of all baby boomers have set aside only $100,000 or less.

Pause. Think. Think again. Not only do half of baby boomers have less than $100,000 in savings, a quarter of those have already tapped into their retirement savings to cover expenses other than retirement; and over third believe they will have to do the same.

What is even more bothersome is that over a third of boomers have saved less than $50,000 for their retirement, while only 15% have amassed nest eggs over $500,000. Even this large amount is not enough to guarantee a retirement income needed to maintain their standard of living.

If these figures are accurate, (okay, if they’re even half-way correct) a lot of baby boomers could end up struggling to pay their bills when they retire. This is why so many boomers feel as if they will never be able to retire.

For many boomers, the equity in their homes could be the answer they are searching for, and a reverse mortgage could be the financial vehicle that saves their retirement plans. I’d be happy to discuss your specific circumstances and give you my professional opinion of whether or not a reverse mortgage could be the right solution for you. Please email me at: trey@centennialmtg.com and we’ll discuss all the details.