June 7, 2022 By

Tuesday’s need-to-know money new

Today’s top story: Should you use a reverse mortgage to pay for long-term care? Also in the news: A new episode of the Smart Money podcast on giving family and friends money, a look at the Metro affordability report for first-time buyers, and the easiest ways to make your cell phone bill cheaper.

Should You Use a Reverse Mortgage to Pay for Long-Term Care?
A reverse mortgage can provide a crucial stream of income to pay for long-term care costs, but there are some limitations.

Smart Money Podcast: Giving Family Money, and What’s Happening With Inflation
This week’s episode starts with a discussion about when and how to give your family and friends money.

First-Time Home Buyer Metro Affordability Report – Q1 2022
Two years into the pandemic-era housing market, affordability falls again, making a bleak first quarter for first-time home buyers in 2022.

The Easiest Ways to Make Your Cell Phone Bill Cheaper
Your attention span is already prisoner to your phone; your wallet doesn’t have to be, too.

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June 3, 2022 By

Friday’s need-to-know money news

Today’s top story: Don’t let your first car be a $30K mistake. Also in the news: House Democrats push Treasury, IRS for repeal of rule blocking state and local taxes cap workaround, should you use a reverse mortgage to pay for long-term care, and the easiest way to make your cell phone bill cheaper.

Don’t Let Your First Car Be a $30K Mistake
Buying your first car right now isn’t easy, but with the right prep you can find a car that won’t become a burden.

House Democrats push Treasury, IRS for repeal of rule blocking state and local taxes cap workaround
Three House Democrats are still pushing for relief on the $10,000 limit on the federal deduction for state and local taxes, known as SALT.

5 ways to get around high credit card interest rates
Credit card interest rates have started going up.

Should you use a reverse mortgage to pay for long-term care?
Someone turning 65 has nearly a 7-in-10 chance of needing long-term care in the future, according to the Department of Health and Human Services.

The Easiest Ways to Make Your Cell Phone Bill Cheaper
Your attention span is already prisoner to your phone; your wallet doesn’t have to be, too.

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August 17, 2020 By

Q&A: Taking out a reverse mortgage may help if coronavirus wipes out your job

Dear Liz: I read with interest the letter from the person who was a tour guide and lost their job due to the virus. I kept reading, expecting you to suggest a reverse mortgage. Are these a bad idea?

Answer: Not necessarily. The person in question owned the home with a sibling, and the sibling did not live in the home, which could complicate the process of getting a reverse mortgage.

If there was substantial equity in the home, however, a reverse mortgage could pay off the existing mortgage and might be worth the effort. One way to investigate this option is to talk to a HUD-approved housing counseling agency.

Filed Under: Coronavirus, Mortgages, Q&A Tagged With: , , ,
June 29, 2020 By

Q&A: The ups and downs of reverse mortgages

Dear Liz: I have been a reverse mortgage specialist for the last 12 years and had some thoughts about the writer who complained that the $40,000 she initially borrowed had grown to a debt of $189,000, or more than her home was worth.

Using a compound interest calculator, it would take about 16.5 years for the debt to grow that large. The borrower would have lived in their home for all that time without making payments toward the debt, although they were still responsible for taxes, insurance and maintaining the property. They can stay in the home for as long as it’s their principal residence. Once they leave the home, the lender will sell the home and receive the difference between the sales price and the loan balance from the government insurance program that everyone with a reverse mortgage pays into. Otherwise, no lender would take out this loan for a potentially long term and risk losing money in the end. Maybe it was a good deal.

Answer: Possibly, but she regretted the decision anyway. She took out a reverse mortgage at a time of financial hardship and now wishes she hadn’t.

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People facing financial crises often develop tunnel vision and grab at solutions without thinking through the future costs of their decisions. (The excellent book “Scarcity: Why Having Too Little Means So Much” by Sendhil Mullainathan and Eldar Shafir explains the science of why that happens.)

Advertising for these loans can gloss over the downsides, such as potentially not being able to tap your equity later, when you may need it more. Reverse mortgages can be a good solution for some seniors but certainly not all of them.

Filed Under: Follow Up, Mortgages, Q&A Tagged With: , ,
June 15, 2020 By

Q&A: Refinancing reverse mortgage

Dear Liz: I am a senior citizen who fell for the hype about reverse mortgages during a really hard time in my life. To this date I regret profoundly having sold my home to the devil! I never imagined that my debt would grow such as it has. My home is currently valued at $120,000 and my debt is $189,000. I was paid just $40,000 when I initiated the loan. Plus, the loan was sold to a company I don’t like. They charge fees for everything, which just adds to the debt, and I am totally unable to do anything about what they charge. Can I refinance this loan with another company?

Answer: A reverse mortgage technically can be refinanced, but you would need to have substantial equity in your home. Since that’s not the case, you’re stuck.

Many people don’t understand how a reverse mortgage balance can grow over time. Although reverse mortgages allow people 62 and older to convert home equity to cash, without requiring payments, any amount borrowed grows at the interest rate specified in the loan contract. People who tap their home equity early in retirement may find they don’t have any equity left later.

Although your debt exceeds your home’s value, neither you nor your heirs will be on the hook for the difference. The lender will have to accept the proceeds of the home’s sale when you die, sell or move out as payment in full.

Filed Under: Q&A, Real Estate Tagged With: ,
May 19, 2020 By

Should seniors consider a reverse mortgage now?

Reverse mortgages allow older homeowners to turn part of their home equity into tax-free cash, using a loan that doesn’t have to be paid back until they die, sell or move out.

That sounds good to a lot of seniors navigating financial fallout during the coronavirus pandemic. Stay-at-home orders may have taken away jobs needed to make ends meet, while low interest rates and a volatile stock market have endangered income from retirement savings.

A reverse mortgage could be exactly the right tool at the right time. Or it could be an expensive mistake. In my latest for the Associated Press, learn exactly how these loans work and alternatives to explore before you commit.

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July 9, 2018 By

Q&A: Reverse mortgages have improved but still require caution

Dear Liz: You’ve written about the potential financial flexibility and options for preserving quality of life for seniors by using a reverse mortgage line of credit. I believe there is a great need for much more cautionary advice regarding reverse mortgages.

Someone I know entered into a reverse mortgage and the consequences have been disastrous. She was barely past the minimum age of 62 when she got the loan and took the lump sum option, only to spend it hastily on various purchases and debts.

Having no income other than Social Security, and almost nonexistent savings, she faces many years of figuring out how to pay property taxes and ongoing maintenance costs to avoid foreclosure. So although she has her home, it’s a precarious situation from year to year. She also no longer has an asset that could be used for long-term care or other expenses because the reverse mortgage makes it unlikely the owner will receive any leftover proceeds after paying off the lender.

Answer: You didn’t say when your friend got her reverse mortgage, but the rules for lump-sum payouts have been tightened under the Federal Housing Administration’s Home Equity Conversion Mortgage program.

In the past, borrowers could take 100% of the loan proceeds upfront. Today, only 60% is typically available in the first year. The total amounts that can be borrowed overall have been reduced as well. These changes were meant to shore up the program’s finances, but they also could lead to fewer situations like your friend’s.

That said, people should be extremely careful about encumbering their homes in retirement. Prospective borrowers have to meet with HECM counselors to discuss a reverse mortgage’s financial implications and potential alternatives, but they would be smart to also meet with a fee-only financial planner.

Filed Under: Q&A, Real Estate Tagged With: , ,
March 26, 2018 By

Q&A: The dark side of reverse mortgages

Dear Liz: I have had a reverse mortgage on my condo since 2009, due to financial necessity. The interest rate on my mortgage keeps going up. Could the interest rate be reduced by changing lenders or would there be exorbitant fees involved in the process? My financial standing is not good, and I am in credit card debt. However, I do pay the minimum payment each month on each card. Being retired, I need some guidance on relieving the financial pressure I am currently experiencing.

Answer: Please consult a bankruptcy attorney.

Changing reverse mortgage lenders would indeed involve considerable expense and wouldn’t relieve any financial pressure because you don’t have to make payments on this kind of loan. (For those who don’t know, reverse mortgages allow people ages 62 and older to tap their equity in a lump sum, through a stream of monthly checks or via a line of credit. The debt grows over time, typically at a variable interest rate, but the borrower doesn’t have to make payments. The loan is repaid when the borrower moves out, sells the home or dies.)

If you can pay only the minimums on your credit cards, you probably have more debt than you’ll be able to repay. Some people manage to dig themselves out of such debt, often by working two jobs and dramatically cutting their expenses. They may use a debt management plan offered by a credit counselor to reduce their interest rates. Sometimes they sell their homes and use the equity to pay off the debt.

You can explore these options, of course, but chances are they won’t be a solution for you.

You may not be able to find a job, or have the stamina to work. Selling your home to pay off the debt would leave you without a house in your old age and may leave you without income, if you’re getting monthly checks from your reverse mortgage. If you borrowed a lump sum instead, your debt may have grown to the point where you don’t have much equity left anyway.

Your situation is one of the reasons many financial planners are leery about reverse mortgages. They can be an extremely helpful tool in retirement, but sometimes people use them as a way out of a financial jam without addressing the spending or other issues that got them into the jam in the first place.

Filed Under: Credit & Debt, Q&A Tagged With: , ,
March 21, 2018 By

Why reverse mortgages are a harder sell now

The millions of Americans who haven’t saved enough money for retirement still have a potential safety net: their home equity. But recent changes to reverse mortgages mean seniors and their families may have tougher decisions to make.

In my latest for the Associated Press, the changes to reverse mortgages that are causing people to think twice.

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