Your Future is Now

      The farmer knows he must become adept at one of two things:  Planting in the spring or begging in the fall.  It’s time for planting….

 

Oftentimes when I meet with clients, I hear statements like: “I don’t need the money right now; but when I do need it, I’ll get in touch with you.”   Today, I’ll attempt to show you how faulty this line of reasoning is, and how to make your home’s equity work for you now to take care of your future.      As you are hopefully aware, the HECM Adjustable Rate Mortgage (ARM) allows the borrower to elect to place their funds in a Credit Line or Line of Credit, from which the borrower can withdraw funds as needed.   Interest only accrues on the balance of funds that have been withdrawn, and it thus operates much like a Home Equity Line of Credit. Of course, with the Reverse Mortgage Credit Line, you are not obligated to make monthly payments.      Now for the huge difference: the Reverse Mortgage Credit Line grows in size as time goes by.   That’s right, I said it: the unused balance of your Credit Line becomes larger each month.  Your unused balance is not gaining interest, so you’re not going to be taxed, but it will grow just as if the bank was paying you interest.      If you look at a typical Reverse Mortgage Loan Comparison (which any lender will show you), you’ll see a figure called the Credit Line Growth Rate.   At this moment in time, the Growth Rate will be your Interest Rate plus 1.25%.  On the Reverse Mortgage Loan Comparison I created today, the Interest Rate is 4.475% and the Credit Line Growth Rate is 5.725%.   I know I’m putting some of you to sleep with these numbers, but stay with me now; this is where it gets interesting.      Our borrower, Mr. Sample, closes his Reverse Mortgage Loan at the age of 64.  He told me he is not retiring for another ten years so he doesn’t need the funds right now.  He places his funds ($230,000) in the Credit Line Account which has a Growth Rate of 5.725%.  At the end of the first year, his available Credit Line balance has grown to $243,167.50.  Not too shabby, but since the Growth Rate compounds, it grows faster and faster each month.  At the end of 10 years, the available balance has grown to a whopping $401,332.84, and all Mr. Sample had to do was make a decision for his future without waiting until he was up against the wall.

Good decisions are generally made when we’re not under pressure.  Do yourself and your family a favor and think about improving your future today.

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Who Are You Calling Old?

You can call me a baby boomer; you can call me a retiree; you can even call me late for dinner, but don’t call me old.  That’s the word from a poll commissioned by the Associated Press-LifeGoesStrong.com conducted in June of this year.

 The generation of baby boomers who once proclaimed that: “we’re never going to get old,” are holding fast to that way of thinking.  While younger adults call 60 the beginning of old age, about half of boomers are pushing the number back to 70, and almost a quarter of them don’t think you’re old until you’ve reached 80.  As they march into their early sixties, many are finding out it’s not so bad, and they feel upbeat about their futures.

 A decided majority of baby boomers are actually enthusiastic about aging and all its fringe benefits like watching children and grandchildren grow up, spending more time with family and friends, and having time for favorite activities.  “I still think I’ve got years to go to do things,” says Robert Bechtel, 64, of Virginia Beach, VA.  He retired last year and now has less stress and more time to do as he pleases.

 About half of the baby boomers predict a better quality of life for themselves than their parents experienced as they aged.  “I have no intentions of sitting around the house,” said Lynn Brown, 64, of Apache Junction, AZ.  “I’m enjoying being a senior citizen more than my parents did.”

 Almost all of the boomers – 90 percent – are making a conscious effort to eat better to improve their health, and more than half have taken up a regular program of physical exercises as well as mental exercises to stay sharp.  Loretta Davis, 64, of Salem, W.VA, reads, plays games on her computer and takes walks.  “I wish I had been more conscious of what I was eating earlier in life,” said Davis.  But she said getting older doesn’t bother her: “I’m just glad to be here.”

 Oops, gotta go know, I’m late for the gym….

(Cross-posted at Senior Security)

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Equity Over There, Or Equity Right Here

The subject of equity is a part of virtually every conversation about Reverse Mortgages – at least the ones of which I have been a part.  Most people have an idea of what equity actually is; in that it is something of value expressed as a dollar figure.  As it relates to a discussion of a Reverse Mortgage, most potential borrowers think of the equity in their home as the difference between the home’s market value and the balance due on any mortgages and liens.  In other words, the dollar amount that could be converted into cash if the home were sold.  In this way of thinking, they are one hundred percent correct.

We often hear the comment that as time passes, the Reverse Mortgage will “eat into the equity of my home.”  This is less true than it may seem on the surface.  While the Reverse Mortgage will increase in size due to the accrual of interest and mortgage insurance, thereby displacing some of the equity as it exists at that moment, there are other forces acting on the valuation of the homeowners’ equity at the same time.  In the realm of real estate finances, a snapshot in time does not tell the complete story.  The valuation of real estate is on a time continuum; that is, it varies [mostly] up and [occasionally] down due to market conditions.  Thus we need to step back a bit and look at the whole forest rather than one tree.  While it may be true that on the day your Reverse Mortgage monthly statement arrives in the mail, your equity has diminished by one month’s worth of interest; your home is most likely travelling on its path to increased value – and as it goes on this route, your equity increases.

Finally, as we look at the word equity in the dictionary, there are other words with similar meanings.  It now becomes easy to see that Equity = Capital = Wealth, and we can then visualize another concept – something I call Pocket Equity.  Before you close on your Reverse Mortgage, many of you will still be paying monthly payments on your mortgage(s), Home Equity Loans, and maybe a few credit cards.  So, it follows that the equity that was in your pocket (or bank accounts) diminished with each month’s payments, and was now in possession of your creditors.  While you are concerned with the equity in your home, you are reducing your Pocket Equity and probably not living the lifestyle your deserve.  After closing on the Reverse Mortgage, you can still watch your home’s equity move up with the increased value of the real estate, and at the same time, watch and feel the increased equity in your pocket without having to make those monthly payments.

Finally, it pays to get old.

(Cross-posted at Senior Security)

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More About Retirement

The weather here on Long Island was almost spring-like yesterday, so I went to the park and walked around for the first time in months.  I came upon two elderly gentlemen sitting on a bench overlooking the lake.  One of the men said to his friend that his wife asked him this morning what he was going to do today.  He replied: “Nothing.”  She said, “That’s what you did yesterday.”  He answered: “Yup, but I didn’t finish.”

Okay, okay, that didn’t really happen, but some of us look forward to retirement so we can do nothing if that’s what we decide to do on a given day.  Most of us would go batty if we had to live the rest of our lives doing nothing, but doing something usually requires some money.  Those of you who have one of those incredible union pensions I’ve been reading about the last few weeks might want to go back to packing for your late winter trip to a warmer clime.  For the rest of us, let’s talk about a few retirement ideas.

I’m not an expert retirement planner (believe me) and I have made a few wrong turns in my financial life.  One problem was that I was never going to get old.  Wrong.  Second problem was some of that IRA money was needed for a juicy investment.  Bad choice.  Then, my 401k shrunk to a 201k back in 2008.  Yikes.  I’m in my early 60’s and the retirement piggy bank looks like that picture above.  Now what?

I checked the lottery numbers this morning, and – sigh – I’ll be at work tomorrow morning.  The Geico radio advertisement just informed me there is no money tree and no pot of gold at the end of the rainbow.  Social Security should be there in a couple of years when I turn 66, but that’s not nearly enough monthly income on which to retire.  As some of you have already guessed, I’m thinking: HECM Reverse Mortgage with Tenure Payments for Life.  Tax free monthly payments wired into your bank account for the rest of your life – no matter what!  You can’t outlive these payments – as long as you continue to reside in your home, those tenure payments from the bank will arrive in your account on the same day every month.  The interest rate on this Reverse Mortgage right now is around 2.5% and you only owe the interest on the amount of principal you’ve actually received.  And, you keep the ownership of your home with no monthly payments to the bank.

I know, you want to know how much you are eligible to receive right?  I’ve thought of that too, and I have a free, Reverse Mortgage calculator here, available for you to use.  Just enter some simple information and see how much closer to retirement you can be.  As for me, I’m going for a walk in the park with a big weight off my shoulders.

Finally, it pays to get old.

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