Retirement Equity Solutions powered by Magnolia Bank

Retirement Equity Solutions powered by Magnolia Bank The Retirement Equity Solutions Team at Magnolia Bank. Find out how a reverse mortgage loan can give

Get a quote and retire better with a Home Equity Conversion Mortgage.

02/28/2023

What is a Reverse Mortgage, and how it works?
The most common reverse mortgage is a HECM (Home Equity Conversion Mortgage), which is just a type of FHA loan. The difference is that because you’re over 62, you may be eligible for a HECM which you don’t have to make monthly payments on it if you don’t want to. You can make payments whenever you want to, but you never have to as long as you live in the home as your primary residence. Like with all mortgages, you have to pay your property taxes, insurance, and any HOA dues and continue maintaining the home. If you don’t make a payment, some interest will accrue and get added to the balance each month. There is another type of reverse mortgage in some states that allows you to be 55 years old or older and still be eligible.
Reverse mortgages allow you to access a portion of the equity in your home, either with a lump sum, monthly payouts, or a line of credit.
You can use the proceeds of a reverse mortgage for anything you want, such as medical bills, home repairs, or other expenses. A reverse mortgage can be used in conjunction with other assets to round out or add to your retirement plan.
You remain on the title to your home just like you do with any other mortgage. The bank does not go on the title of your home. For example, if you decide to sell the house or make improvements, it’s your decision as you still own the home.
The loan must be repaid if you no longer occupy your property as your primary residence, sell the home, pass a way or don’t continue to meet the loan obligations. You must pay your property taxes, insurance, any homeowners dues and maintain the home. Reverse mortgages are nonrecourse loans, meaning you or your estate will never be obligated to pay back more than the house is worth. It is insured for that.
To learn more, please call us at 877.765.2234
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Tapping into your home equity can be a cost-effective way to help fund your retirementWhen your paycheck income stops, i...
12/20/2021

Tapping into your home equity can be a cost-effective way to help fund your retirement

When your paycheck income stops, it can be a daunting time period. While you’re working, you have an accumulation mindset, but when you retire, you look at money differently. It’s a de-accumulation mind set.

To bolster retirement cash flow, many retirees may feel compelled to downsize or move to a neighborhood with a lower cost of living, despite not wanting to leave their homes.

But there is a solution that allows you to retain ownership of your home. If you’re over 62 years old and you own your property outright – or have enough equity in your home – you may be able to convert your home equity into a monthly income stream, a lump sum, or a line of credit. This can be achieved through a reverse mortgage loan, which can be used to pay for renovations, healthcare costs, college fees and day-to-day living expenses. You can even use the funds to eliminate your monthly mortgage payments, although you will need to continue paying your property taxes, homeowners insurance, and maintain your home.

Unlike a traditional mortgage, where you pay monthly installments to a lending institution, with a reverse mortgage, the lender can pay you. While interest rates are comparable to traditional mortgages, there are other costs and considerations to take into account when choosing this form of home equity over other options. Here, we’ll take a closer look at the benefits and trade-offs of incorporating a reverse mortgage into your retirement toolkit.

How long do you plan to live in your home?

While many retirees intend on remaining in their homes, one-third of U.S. baby boomers plan to move at some point during retirement. Others may consider renting rather than owning. Because reverse mortgages have a primary residence requirement for the lifetime of the loan, how long you intend to remain in your home is a fundamental consideration.

If you may need to move to assisted living due to health reasons, retirement funding needs could be more effectively met with traditional financing, such as Home Equity Lines of Credit (HELOCs). Like credit cards, HELOCs allow you to draw on your line of credit when you need it and only pay interest on what you use – but they do not require you to live in the home as your primary residence.

You or your heirs will never owe more than the value of your property

A reverse mortgage is a non-recourse loan. This means that when the loan is repaid, neither you nor your heirs will be personally liable for more than the value of your property. And you’ll never have to pay principal or interest payments while you remain living in your home as your primary residence.

Who is looking to inherit your home?

Whether your heirs wish to inherit your property or not is a key consideration when deciding to leverage your home equity to supplement your retirement income. With a reverse mortgage, the loan amount is only due to be repaid in the event of your death, if you decide to sell your property, or if the home is no longer your primary residence. If your home sells for more than your outstanding loan balance, the difference will go to your loved ones, but if it sells for less, your heirs will receive nothing. The FHA insurance will cover the any shortfall.

It’s important to note that if you want to leave your home to your children, the balance of the reverse mortgage would have to be paid. This could be paid off in cash or through a refinance.

New legislation reduces the risks

Historically, one of the problems associated with reverse mortgages loan was that retirees who were short of funds used reverse mortgages to maintain their lifestyles. Often, the income wasn’t sufficient to pay their property expenses and they would run the risk of foreclosure. Although there are no monthly mortgage payments on a reverse mortgage, you still need to pay your property taxes, homeowners insurance, homeowners association dues, as well as maintain the home.

But legislation has changed over the years. If you apply for a reverse mortgage today, lending institutions will analyze your personal financial situation and put a realistic limit on your loan amount. Your lender could also keep some funds aside to pay for property taxes and homeowners insurance, so there are fewer risks involved.

Help keep retirement income at a level where assets are not depleted

If you take out a reverse mortgage loan in the form of a line of credit at the age of 62, the remaining funds on the credit line increase each month by the amount of interest due on the loan, effectively providing a hedge against inflation. When the stock market is underperforming, you have the option to borrow from this line of credit line instead of having to sell stocks at the lower end of the market. And with the Case-Shiller U.S. National Home Price Index at an all-time high, a reverse mortgage could not only generate income but also protect your property against a potential downturn in the housing market.

Reversing reverse mortgage misconceptions

Historically, reverse mortgages were viewed as a last resort. But today, many financial advisers consider reverse mortgages as a cost-effective way to increase retirement cash flow.

Regardless, misconceptions about reverse mortgages are still commonplace such as the unfounded belief that the bank takes ownership of your house. Like any traditional mortgage, you’ll retain your property’s title as long as you continue living in your home as your primary residence and continue to honor your loan obligations, such as property taxes, household insurance, and home maintenance.

The future of home equity

According to a Global Equity Release Roundtable 2020 survey report, the global equity release market is expected to exceed $50bn by 2031, which means that it could more than treble its value over the next decade. This predicted exponential market growth combined with bullish property prices and longer life expectancies will see more and more retirees leveraging their homes to achieve their retirement goals in the future. As always, we recommend paying close attention to the benefits and risks when harnessing the cash-flow benefits of a reverse mortgage over other home-equity options.

HECM loans can be an innovative way to turn home equity into retirement securityThe 76 million U.S. baby boomers that ha...
12/20/2021

HECM loans can be an innovative way to turn home equity into retirement security

The 76 million U.S. baby boomers that have reached or are nearing retirement age are living very different lives to the generation before them. Some are working longer (with reduced working hours), others are returning to study, while many are living more active lifestyles. Most retirees are wanting to age in place – close to their friends, family, and within their already established communities.

Releasing home equity can be a powerful financial planning tool, helping to balance short- term concerns with long-term goals. In short, equity release is a method of unlocking the value of your property and turning it into income. One way to do this is through a government-insured Home Equity Conversion Mortgage (HECM) – commonly known as a reverse mortgage – designed for homeowners over the age of 62 years.

HECM loans provide tax-free* liquid cash reserves with no monthly mortgage payments. Unlike a traditional mortgage, the lender can offer you a lump-sum payment, a stream of payments, or a line of credit that you can access based on the amount of equity you have in your property. You can use this cash flow for anything you wish: to hold off on drawing social security and pension payouts, to eliminate monthly mortgage payments and increase cash flow**, or to cover unexpected expenses such as medical and nursing care.

Like traditional mortgages, there are costs associated with securing an HECM loan. You’ll need to pay an origination fee, an appraisal fee, a mortgage insurance premium (MIP) and closing costs. Although these fees can be significant (depending on your circumstances), some of them are capped and some can be financed with the loan proceeds. The insurance premium offers you the peace of mind that you or your heirs will never have to pay more than the value of your home in the event of your death or if you sell the property.

In order to qualify for a reverse mortgage loan, you’ll need to be at least 62 years (you could be eligible for some loans from 55 years), your home needs to be your primary residence, and you need to have sufficient equity in your home, which varies by age. Your chosen lender will also need to review your financial situation to ensure that you’re able to meet your loan obligations.

The retirement research: what the numbers say

Retirement income is declining

Research has shown that not enough people are saving adequately for their retirement1. What’s more, the percentage of retirees that are covered by a traditional defined benefits (DB) pension plan that pays a lifetime annuity has been steadily declining over the past 25 years2.

Longer lives require better planning

On average, a man turning 65 today can expect to live to 83, while a woman can expect to live until 85 years. About one out of every four 65-year-olds will live past the age of 90 and one in ten will live past the age of 953

Herd mentality and market volatility

Less sophisticated investors may find it costly to assimilate and analyze information on their own and, as a result, tend to mimic what more successful investors do4 . But herd mentality and overreacting to market volatility is short-term thinking. For optimum long-term results, it’s best to ignore the road bumps along the way and ride out the upwards trajectory.

Tax-free retirement income

One of the best ways to increase retirement income is to minimize your tax liability. If your monthly income combined with your pension is significant, you’re likely to pay taxes on 85% of your social security benefits, and your total tax rate might be as high as 37%5 . Loan proceeds from reverse mortgages are not considered income, so they are a fantastic financial tool to help minimize your tax burden*.

Planning for healthcare

Recent research shows that approximately 65% of U.S. citizens over the age of 65 will require some type of long-term healthcare services, which assists the elderly with daily activities such as dressing, bathing, and using the bathroom6. After retirement, having a monthly income stream that can cover unexpected medical expenses plus the costs of long-term nursing care is essential.

Leveraging home equity to fund retirement

Research shows that 28% of Americans in their sixties have less than $50,000 saved for retirement7. And, without making any changes to their savings and investment strategies, 74% of retirees would fall short of their income needs by 62 years old8. It’s no surprise that 47% of retirees plan to tap into their home equity to boost their retirement income9.

1Engen et al., 2005; Malroutu & Xiao, 1995; Mitchell & Moore, 1998
2The Disappearing Defined Benefit Pension and its Potential Impact on the RetirementIncomes of Boomers, Social Security Administration, Butrica, Iams & Smith, 2009
3 Calculators: Life Expectancy, Social Security Administration, 2016
4 Herd Mentality in the Stock Market: On the Role of Idiosyncratic Participants withHeterogeneous Information, Dang & Lin, 2016
5 2020 Tax Brackets, Tax Foundation, 2021
6 Who needs care?, Administration on Aging, 2020
7 Here’s how much Americans have saved for retirement at different ages, CNBC, 2020
8 Are Retirees Falling Short? Reconciling the Conflicting Evidence, Boston College Centre forRetirement Research, 2014
9 Retirement Check-in Survey, Ameriprise Financial, 2013

*Loan proceeds are not considered income, so are paid out tax-free. Please consult your tax advisor.
**You’ll need to continue to pay for property taxes, homeowners insurance, any Home Owners Association (HOA) dues and home maintenance costs.

Three strategies to maximize your retirement portfolio

HECM loans can help you reach your retirement goals, feel more confident about the future,
and maintain a higher quality of life as you live out your golden years.

Buffering your investments

Markets can be volatile, directly affecting the value of your investment portfolio. A reverse mortgage can be an effective funding source to buffer sequence-return risk (the risk of withdrawing from a retirement account during a market downturn, which can detract from overall returns). Using an HECM loan as an income supplement or to eliminate monthly mortgage payments can also allow you to optimize your tax obligations. Speak with your tax advisor for more information.
Convert home equity into a liquid asset
A reverse mortgage gives you several payment options. One of these is a line of credit, which enables you draw the loan proceeds whenever you wish, in amounts you choose, until you have used it up. This option enables you to convert a portion of your home equity into a liquid asset which will realize growth independently from the housing market, thereby diversifying your risk.

Finance a retirement home

As retirees generally spend more time at home, some are looking to upgrade their living situation to enjoy their later years in more comfort. Not only can a HECM loan finance a new home, but also provide a cash-flow stream to help meet monthly payments. If you’re over the age of 62, you plan to continue living in your home for the rest of your life, and you’re able to meet the loan requirements, this could be an excellent option to consider.

We appreciate that choosing the right equity-release partner is a big decision. As always, its advisable to check references and carefully evaluate any financial institution that you’re considering as a lender. Retirement Equity Solutions (powered by Magnolia Bank) will work with you to understand your financial circumstances and personal requirements before curating a mortgage option to suit your individual needs. If you’re interested in finding out more, contact us to speak to an advisor.

Ten ways to use a reverse mortgage loan to take your golden years from economy to first class.In today’s uncertain econo...
12/20/2021

Ten ways to use a reverse mortgage loan to take your golden years from economy to first class.

In today’s uncertain economy, many retirees are facing significant income reductions, smaller pension pots, and increased expenses due to inflation. If you’re a property owner and over the age of 62 years, you could convert your real-estate equity into spendable cash. This can be done through a reverse mortgage – also known as a Home Equity Conversion Mortgage loan (HECM) – which is a versatile funding tool that can provide you with retirement cashflow in the form of a lump-sum payment, a stream of payments, or a line of credit.

Here are ten ways you can use a reverse mortgage to upgrade your retirement:

Home improvements

During your retirement, you’ll be spending a lot more time at home, so why not use the money for home renovations that will improve your standard of living in your later years? You could also convert an area on your property into a separate space for a family member or caregiver.

Planning for healthcare

A reverse mortgage may be a less expensive insurance policy against your healthcare needs until you’re eligible for Medicare at 65 years. According to the Administration on Aging (2020), around 65% of Americans over the age of 65 will require some type of long-term healthcare services. In addition to nursing care, you’ll also need to plan for unexpected medical costs such as hospital bills for surgery or physical therapy after an accident.

Cover unexpected expenses

With a HECM loan, you can get a line of credit that grows over time, giving you the peace of mind that you’ll have access to funds if and when you need them. The best part is that you’ll only need to pay interest on the amount you draw and the proceeds you’ll receive are paid out tax-free.

Maximize your social security and pension pay-outs


The monthly loan income could allow you to hold out on drawing your social security until after 70 when you’ll receive a higher amount. Whether you receive them in installments or as a lump sum, taxes can eat into both your social security and pension payments. The monies from a reverse mortgage could help you decide when to receive these pay-outs and minimize your tax liability in doing so. The decision to hold off on receiving social security by using a reverse mortgage loan needs to be considered carefully to ensure it makes sense based on the payouts, tax benefits, and costs of doing a reverse mortgage.

Eliminate your monthly mortgage payments

With a HECM loan, you’ll be able to pay off your remaining mortgage payments and continue living in your home. But you’ll still have to pay your property taxes, homeowner’s insurance, and home maintenance costs.

Improve your asset allocation

Instead of liquidating other taxable assets, you can use the proceeds of a reverse mortgage loan to pay monthly expenses so that you can hold onto other value-improving or interest-earning assets. The proceeds can also be used to pay off your credit card and other high-interest debt.

Buffer your investment portfolio

A HECM loan can help ease the volatility of investment markets and fill unexpected gaps in your retirement income due to poor returns from underperforming stocks. You can also hold onto these stocks until they recover so that your retirement portfolio is not depleted in the event of a major market downturn.

Strengthen your cash flow

With a tenure-based or modified tenure plan, you can get a monthly payment for the rest of your life (as long as you continue to meet your loan obligations). Combining these monthly life-tenure payments with your social security pay-outs is a great way to help replace your salary.

Set up a retirement business

Studies have indicated that staying active, mentally alert and connected during retirement is the best way to combat the health issues caused by aging. You can use your HECM loan proceeds to set up a part-time consultancy or retirement business, making use of your work experience and niche skills. This can also be a great way to supplement your income or give back to your community.

Transportation and travel

Arrange alternative transportation for when you’re no longer comfortable driving yourself or use the funds to plan a trip to visit your friends or family.
If you’re interested in discovering more about how a reverse mortgage could help improve your retirement, contact us to speak to an advisor.

We’ll be happy to sit down with you to get an understanding of your financial circumstances before discussing different mortgage options that will meet your personal needs.

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