facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Could a Reverse Mortgage Flip Your Retirement Plans Upside-Down — In a Good Way? Thumbnail

Could a Reverse Mortgage Flip Your Retirement Plans Upside-Down — In a Good Way?

We’re always happy to hear from Keen on Retirement listeners! On this week’s show, we’re answering a question from Chuck in Los Angeles that we’ve also been fielding from some of our clients at Keen Wealth:

Hi Bill, I looked through your podcasts in search of one dealing with reverse mortgages. From what I have seen in the L.A. Times, this can be an important subject for retirees. I was hoping you would consider doing a podcast on this. Apparently, a reverse mortgage can make or break a person's financial situation and/or that of a survivor depending on the several options connected with them.

So, what exactly is a reverse mortgage? What are the options that Chuck alludes to in his question? And is Magnum, P.I. giving you good advice in all those TV ads you’ve been seeing?

Listen to the Episode

Simply "click" or "tap" on the "play" icon in the image below to listen to the episode. If you'd like to subscribe to the podcast using an Apple product (iPhone, iPad, iPod touch) click here to learn how. If you use an Android phone, we recommend using the Podcast Addict App, which can be downloaded here.

     

 Download the Transcript Here

What is a reverse mortgage?

A reverse mortgage is secured against the equity that you’ve built up in your house. It’s repaid when the borrowers no longer live in the home. That means no monthly payments like a traditional mortgage. You do have to keep paying your real estate taxes and homeowner’s insurance, and you have to keep your home in good condition. You also have to be at least 62 years old and pass the lender’s credit check. Finally, the property you’re taking out the reverse mortgage against needs to be your primary residence. Your vacation home doesn’t qualify.

Is there more than one kind of reverse mortgage?

Yes, several. But for the purposes of this discussion, we’re going to focus on reverse mortgages that fall under the Home Equity Conversion Mortgage (HECM) umbrella. These reverse mortgages are federally insured nonrecourse loans, which means that the government would pick up the difference if your house ends up worth less than what the size of the loan has accumulated to over the course of your life.

On a reverse mortgage, the homeowner may receive funds in a variety of ways: as a lump sum at the outset; as a monthly tenure payment, which continues until the borrower dies or moves out of the house permanently; as a monthly term payment over a period specified by the borrower; or as a credit line on which the homeowner can draw at her own discretion.

As you’re working to secure your HECM reverse mortgage, you’ll have to pay to meet with a counselor from an independent government-approved housing counseling agency who will discuss all the advantages and disadvantages of this loan with you. You can expect to receive anywhere between 40% and 60% of the value of your home, and generally the older you are, the bigger the loan can be.

So, it’s free money? Sign me up!

Not exactly.

The big caveat to a reverse mortgage is what we call “negative amortization.” This means that since you are not making monthly payments on your reverse mortgage, the balance that you owe is going up every month. So, if you decide to sell your house or you pass away, the loan balance will be repaid out of the remaining equity in your house. That could have a big impact on how much money you or your heirs end up receiving on the eventual sale of your house.

Also, don’t forget about the eligibility requirements. If you fall behind on your property taxes, homeowner’s insurance, or home upkeep, then the lender could foreclose on your property.

But Tom Selleck says reverse mortgages are “NOT too good to be true” and “very simple.” Shouldn’t I just get one?

I like “Magnum, P.I.” and “Three Men and a Baby” too, but these reverse mortgage ads are missing one very big part of the picture: you!

Sure, reverse mortgages can be a good way to get some cash out of your home, provided that you have a decent amount of equity built up and you’re not currently struggling to pay your monthly bills. You might even consider opening a line of credit that you don’t use just so it’s there in case of an emergency.

But retirees who are struggling and turn to a reverse mortgage for a quick fix could be setting themselves up to lose their homes. If you’re having trouble keeping up with your bills, selling your home and downsizing might be a better option.

Really, the most important question to ask if you’re considering a reverse mortgage is, “Why?” Every financial decision you make should be purposeful, especially once you’ve retired. If you have a specific need that you think a reverse mortgage might help you meet, don’t call those numbers under Tom Selleck. Call up my Keen Wealth team and let’s discuss all your options.

And if you have a retirement or finance question you’d like us to tackle on a future show, contact us here.


Please share this page and the podcast with your friends and colleagues via Linkedin, Twitter and Facebook. You can use the share buttons. Thanks! Got a question or comment? Email it to me and we'll get back to you or call our office at (913) 624-1841. 


About Bill

Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.

The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.

The Amazon Best Seller ranking listed on marketing materials is specifically referring to Best Seller rankings for the Kindle Top 100 Paid Lists under the subcategories of: Budgeting and Financial Risk Management, based on data as of September 5, 2019. Amazon rankings although relevant on how a product is selling overall doesn’t necessarily indicate how well an item is selling among other similar items or similar item categories. Amazon may choose the most popular categories or subcategories within which an item has a high ranking to determine its best seller rankings. These rankings are updated hourly and as a result, should be expected to fluctuate as such. Keen Wealth Advisors and Amazon are not affiliated entities. 

The Steve Sanduski Advisor Network, Belay Advisor, LLC and other third-party contributors to our blogs and podcasts are not affiliated with Keen Wealth Advisors. 

For additional details on Keen Wealth Advisors, please visit https://www.keenwealthadvisors.com/important-disclosures.

Schedule a Complimentary 15 Minute Strategy Call

Schedule a Time