How Reverse Mortgage is Helping the Baby Boomers

Posted on by Janis Layman

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonWhile the “baby boomer” generation inches towards retirement, the economy in many areas is still rather dismal.  Many took major losses in the 2008 economic meltdown, losing their hopes for a prosperous retirement.  In situations such as this, reverse mortgage is becoming an important piece of retirement planning.  Seniors, 62 years and older, now have the ability to fund their retirement using the equity in their homes, alleviating mortgage payments, and receive either monthly pay-outs or  line of credit as long as the borrower(s) remain in the residence.  Reverse mortgages can even be used to purchase a home now.  For many, this option makes a world of difference, allowing for the sought after prosperous retirement years instead of barely scraping by on a budget.  Reverse mortgage funds can be used for any purpose the borrower chooses, and is often used to help with every day expenses or long term medical costs.

According to several sources there are an estimated 60 to 75 million boomers entering or approaching retirement.  Financial and retirement planners in Seattle and nationwide are educating themselves extensively on reverse mortgage in order to better use it as tool in future planning.  They are working closely with reputable reverse mortgage lenders in order to fill in the gaps where retirees are looking for options.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.

Are Funds From Reverse Mortgages Taxable?

Posted on by Janis Layman

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonIt’s the New Year!  This means new possibilities and new opportunities are abound!  But it also means it’s time to get business in order in preparation for tax season.  It’s common during this time of year for me to receive many questions regarding taxes and reverse mortgage– from both those considering a reverse mortgage, and those who already have a reverse mortgage.

Here are the two most common questions I get:

Are the funds from my reverse mortgage considered “taxable income”? 

No.  This can often be a huge benefit of a reverse mortgage – the funds received are NOT taxable, meaning they do not count as income.  This can be a positive compared to other types of retirement income, including various investments, some of which are taxable.  Because the funds received from a reverse mortgage are technically an advance on a loan, any payments or lump sums received are not taxable income and do not need to be reported on a tax return.  They also typically do not affect Social Security or Medicare payments.

Is the interest from my loan deductible? 

No.  Because reverse mortgage holders do not make monthly mortgage payments and typically the interest is not paid until the loan is paid in full, the interest from a reverse mortgage loan is not deductible on a tax return.  This is also the case with a reverse mortgage for purchase loan.

FHA insured reverse mortgages are available to homeowners 62 and older in the Seattle, Washington and surrounding areas.   These loans allow the borrower to live mortgage payment free and receive their loan payment in monthly installments, a line of credit, a lump sum, and even as a tool to purchase a new home.  All borrowers are required to participate in third party counseling to ensure all their questions are adequately answered before making a decision.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.

Reverse Mortgage FAQ – Part 1

Posted on by Janis Layman

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonThis is the first in a three part series of frequently asked questions about Reverse Mortgage.  Find Part 2 here and Part 3 here.  If you have questions that are not currently listed, please don’t hesitate to contact me directly.

Are There Any Special Requirements to Get a Reverse Mortgage?

In order to qualify for a reverse mortgage, you must own your home, be at least 62 years old, and have some equity in your home.  In early 2015 the FHA implemented new rules requiring lenders to consider credit and income for each applicant, similar to a traditional mortgage, the purpose being to minimize possible defaults due to the inability to pay property taxes and homeowners insurance. But unlike a traditional mortgage, if potential borrowers do not meet this criteria, there are still options through a Fully-Funded Life Expectancy Set-Aside, which is an amount drawn under the HECM that is reserved for payment of property taxes and insurance by the lender; or a Partialy-Funded Life Expectancy Set-Aside which works the same as the Fully-Funded option except a smaller reserve is drawn when borrowers meet credit requirements but not income requirements. The amount of both of these reserves is determined by the age of the borrower and the value of the home.

How Much Money Can I Get?

In general, the older you are (or the youngest borrower in the case of married couples) and the more valuable your home, the more money you can get.  Other factors also come into play, such as: the appraised home value, interest rates, and the amount of equity in your home.

Does My Home Qualify?

Eligible properties include single-family homes, 2-4 unit properties, modular homes, condominiums, and townhouses.  This home must also be your primary residence.

What are My Payment Plan Options?

Funds from a reverse mortgage can be received as fixed monthly payments for a set term or for as long as you live in the home, as a line of credit which allows you to draw on the loan proceeds at any time, a lump sum, or a combination of all these.  Reverse mortgage can also be used to purchase a home wrapping the purchase the home with a reverse mortgage loan.

How Can I Use the Proceeds from a Reverse Mortgage?

Their are no restrictions as to how the proceeds from a reverse mortgage can be used.  Whether it is to supplement retirement income, to cover your living expenses, to repair/modify your home, to pay for medical expenses, pay off existing debts, or simply do something for nice yourself, no one can tell you how you must spend your money.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.

How to Incorporate a Reverse Mortgage into Retirement Planning

Posted on by Janis Layman

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonDo you remember two and three decades ago?  When we worked hard, saved for retirement, invested in our 401k’s, paid down our mortgages…all while dreaming of the years we’d finally be able to retire?  It was an optimistic time and so many did everything right.  Unfortunately many of those same dedicated individuals faced trouble during the economic downturn less than a decade ago.  With lay offs and investments gone sour, soon-to-be retirees had to tap into their 401k’s to stay afloat, potential pensions went stagnant, and they watched their retirement dreams dwindle.  Retirement and financial planners have been picking up the pieces ever since, trying to determine how these hard working Americans can still enjoy the golden years they deserve.  And what they are discovering is that one of the largest assets of many retirees – their home – has been grossly overlooked as a retirement tool.  Reverse mortgages were only considered a last resort and were rarely discussed, let alone considered part of an upfront retirement plan.  Well, things have changed – a lot.

In a recent article for Wall Street Journal, retirement expert Wade Pfau says this:

Let me explain why reverse mortgages can help. Retirees have a series of expenses they must be able to support to enjoy a successful retirement. These expenses consist of overall lifestyle spending goals, unexpected contingencies and legacy goals. The task is to manage their assets in a way that efficiently meets goals and mitigates retirement risks related to not knowing how long you will live, to market volatility, and to spending surprises that can impact the plan. The reverse-mortgage option should be viewed as a method for responsible retirees to create liquidity from an otherwise illiquid asset, which in turn can create new options that potentially support a more efficient retirement income strategy, such as more spending and/or more legacy.

Intuitively, there are two reasons why opening a reverse mortgage earlier in retirement has the potential to improve retirement efficiencies despite the reverse-mortgage costs for those wishing to remain in their homes.

First, coordinating draws from a reverse mortgage reduces the strain on investment portfolio withdrawals, which helps to manage the sequence of returns risk facing retirees. Retirees are more exposed to investment volatility because volatility has a bigger impact on financial outcomes when taking distributions from the portfolio as compared with when adding new funds to the portfolio. Reverse mortgages provide a buffer asset to sidestep this sequence risk by providing an alternative source of spending after market declines.

The second potential benefit for opening the reverse mortgage early, especially when interest rates are low, is that the principal limit that can be borrowed from will continue to grow throughout retirement. Reverse mortgages are non-recourse loans, and for sufficiently long retirements, there is a reasonable possibility that the line of credit may grow to be larger than the value of the home.

To witness a reverse mortgage completely alter the uncertain course many retirees believe they are on is wonderful.  This is about so much more than utilizing a program that has long been available, it’s about truly helping seniors live out the retirement of their dreams.  The retirement they were once so optimistic about, the one they worked so hard to achieve.

Reverse mortgages are available to many senior homeowners 62 and over.  These loans are insured by the FHA and provide non-taxable income to the borrowers based on the available equity in the home.  The more equity and the older the borrower, the more funds available.  The funds can be accessed via a line of credit, monthly installments, a lump sum, and even can be wrapped into the purchase of a new home.  The borrower can always use the funds for whatever they deem fit.  Working with a retirement planner or financial adviser will help ensure the most strategic use of the loan.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.