John Le Francois NV-MLD #40102
This past month the Social Security Department announced that for the first time in 26 years there will not be an adjustment for COLA (Cost of Living Increase) for Social Security recipients starting in 2010. Many recipients might actually see a decrease in payments due to higher Medicare premium costs. Social Security Department has defended this action stating do to the lower inflationary costs there was no need to provide an increase. They also stated that they have included the higher Medicare premiums to calculate for the COLA adjustment.
While this may seem rational to some and a fair approach on government control on spending, it hurts the most vulnerable people in our society who are dependent on the fixed income they receive. What is not factored in is that while the Social Security recipient was getting the COLA increases it did not keep up with inflation and the money did not stretch as far as the previous years.
Senior’s have been the hardest hit as the job market has shrunk, so has the jobs that were needed to help make ends meet for them. Baby boomer’s that are now reaching retirement age are now questioning if they can even retire as pensions are decreasing and 401K’s are now only 50% or less off of its highest value. Some senior’s bought houses with ARM’s in the believe that they could use their 401K to pay off the mortgage only to see that they do not have the funds to do this now. They can not refinance into a fixed mortgage as the value of the home as depreciated.
Some Seniors are making some very difficult decisions on priorities on utilities, food, or medical costs to keep from losing their house. Most seniors do not want to move from their home that they have worked hard for. Most seniors do not want to ask their children for help and do not let them know until it is too late.
Reverse Mortgage
There is a solution to most of these problems, a Reverse Mortgage. Most seniors are missed informed on how the program works as they have only heard the “Urban Legends” and as such I will list some of the misconceptions.
Myth #1: The bank takes away OR I will lose my house .
FACT: With a reverse mortgage, the borrower retains title to the home throughout the life of the reverse mortgage:
The borrower cannot, as a result of the reverse mortgage, be forced out of his or her home as long as property taxes and hazard insurance are paid, the home is maintained in reason living condition, and at least one borrower resides the home as their primary residence.
The loan must be repaid once the last borrower permanently moves out of the home.
Myth #2: The home must be debt free to qualify for a reverse mortgage .
FACT: Reverse mortgages convert home equity into cash. As long as there is sufficient equity in the property, the homeowner may be eligible for a reverse mortgage. In fact, many seniors use a reverse mortgage to pay off an existing mortgage in order to eliminate a required monthly mortgage payment.
Myth #3: The bank sells the home when the reverse mortgage becomes due .
FACT: The borrower is in control of the home and retains title, not the bank or lender. So while it’s common for the borrower or the heirs to sell the home to repay the loan, it’s a decision the borrower or the heirs make. The borrower or the heirs might also refinance the home in order to repay the loan.
Myth #4: My children won’t be comfortable with me obtaining a reverse mortgage .
FACT: Seniors are encouraged to talk with their children about reverse mortgages. Many baby boomers are faced with trying to plan for their retirement and pay for their children’s education. Often, the children of many seniors are happy that their parents have a financial solution available to help them live more independently and financially secure.
Myth #5: The borrower could end up owing more than the house is worth .
FACT: Two of the great built in safeguards of reverse mortgages are that they are structured so that the borrower can never owe more than the fair market value of the home upon repayment*. In addition, HECM products are insured by the Federal Housing Administration, an arm of the U.S. Department of Housing and Urban Development (HUD).
*If the borrower or the heirs want to keep the house by refinancing the debt and paying off the reverse mortgage, the borrower or heirs must payoff the balance in full, regardless of the value of the property. If the last borrower has moved out of the property and the property will be sold in an arm’s length transaction, the property may be sold for the fair market value and neither the borrower’s estate nor the heirs will be responsible for a deficiency balance.
Myth #6: Reverse mortgage proceeds will impact Social Security and Medicare benefits.
FACT: A reverse mortgage will generally not affect regular Social Security payments or Medicare benefits. Depending upon the borrower’s situation, a reverse mortgage may affect benefits one receives, if any, from the Federal Supplemental Security Income (SSI) program, or state-administered programs like Medicaid. It is recommended that the borrower speak with his or her financial advisor and appropriate governmental agencies.
Myth #7: There are restrictions on how the money is used and taxes will have to be paid on it.
FACT: Actually there are no restrictions. The cash proceeds from a reverse mortgage can be used for almost any purpose and since it’s already your money, it’s tax-free. Many seniors have used reverse mortgages to travel, pay off debts, help their kids, make a luxury purchase or just live more comfortably.
Myth #8: Reverse mortgages are only for seniors in need, or for the ‘house rich, cash poor.
FACT: Reverse mortgages are an excellent financial planning tool that has been used by homeowners from all walks of life to enhance their retirement years. In fact, with the new 2009 lending limit, many seniors are benefiting from increased cash benefit from a reverse mortgage.
To get more information or to see if you qualify for a Reverse Mortgage contact me.
John Le Francois
Direct Access Lending NV-Broker # 405
650 White Drive #200
Las Vegas, NV. 89119
Office: 702-2-617-9900 Ext. 1165
Fax: 702-617-9970
Mobile: 702-271-2659
E-Mail: john.lefrancois@dalusa.com
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