With the market’s level of volatility similar to that of a six-year-old at a candy store, it’s no real surprise that the reverse mortgage market is booming. Okay, maybe ‘booming’ is generous, but let’s say relative to the reverse mortgage market’s performance pre-market-downturn… a few more nodding heads are certainly evident.

Retirees (or should-be retirees) who’ve spent a lifetime busting their proverbial behinds to build a comfortable future are finding their retirement fund severely diminished to the tune of 30 to 40 percent. The result? Exponentially increasing difficulty to pay their mortgage, manage increasing medical bills (with decreasing coverage) afford the cost of living, or simply retire when they’d planned. Fair? Not so. Not for those who deserve better, or who need better… who need to retire for the sheer sake of health.

Reverse Mortgages Explained

And that’s where a reverse mortgage can really benefit homeowners who are 62 and older. Quick definition for those unfamiliar: Reverse mortgages are exclusively for homeowners age 62+ and allow you to eliminate your mortgage payment if you have one, or if you own your home free and clear, you can stay in you home and use your home’s equity like income… and never make another monthly mortgage payment for as long as you live in your home.

But here’s what gets me—as a product of incredibly hard-working parents. There are two major challenges among senior homeowners in need, that stop people from considering a reverse mortgage.

1. A lack of understanding about the program itself: Benefits, qualifications, risks, fees, myths, etc. This is purely understandable. Without a good understanding of the product, the idea of tapping into your home’s equity without making a payment is so foreign and seemingly surreal that homeowners—particularly older homeowners who are necessarily cautious of fraud—are very hesitant to ‘buy in.’ Makes perfect sense.
2. But the real mystery to me is The children of these homeowners. The children of these homeowners object to their parents pursuing a reverse mortgage, even when they’re in need of additional income. Why would this be? Because they’re afraid their parents will be taken advantage of? Not usually. Most of these programs are government-insured, with guidelines set by the Federal Housing Administration. Not to mention that there are scads of sources from trusted organizations ripe with explanations on the product. So what’s with the kids? What interest do they have in this transaction? Well, when you get a reverse mortgage, your home’s equity is paid out to you. Which means there’s less equity left in the house once the owner no longer occupies the home. And what’s another word for equity? Inheritance.

It’s this group of protestors that is purely beyond me. As far as I’m concerned, you can dislike the concept of reverse mortgages all day long for any reason… EXCEPT this one. Talking a parent out of a comfortable retirement… or a retirement at all… (funded by their own hard-earned dollars mind you) for the purpose of preserving inheritance is puzzling to say the least. Some “children” of seniors cite the fact that they were “promised” this inheritance, or they built their financial plan around one day getting it, or that this was the only way they were going to achieve ultimate comfort in their own lives… One inquiry on a public online forum asked, “How can I talk my dad out of a reverse mortgage?” then proceeded to cite personal interests.

If I can interject my own opinion here, all I can say is: “Not in this market” (followed closely by, “You kiss your mother with that mouth?”). First, there are still ways to preserve equity in your home with a reverse mortgage or preserve the money you receive from your reverse mortgage in an interest-bearing account. (A financial advisor or reverse mortgage counselor/banker would have a line on this.)

Second, it’d be nice if we could all agree on this: With the cost of living on the rise and retirement funds getting as much endangerment press as the polar bear (without the heartstrings), senior homeowners deserve the first right to their own money and they deserve to know how they can use it to their benefit without anyone’s interest but their own in mind.

Photo Credit: cogdogblog

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Tags: housing, loan, mortgage, retirement, reverse mortgage, reverse mortgages

With the recent crash of the Stock Market and continued weakness in the housing market, people are scrambling to find “safe” places to invest.  Many people are taking their money out of the market in fear that the system will crash.  There are many valid reasons for doing this. However, if the primary reason is that you are afraid of the current volatility in the market, you could make an extremely costly mistake.

Selling now and buying back into the market when the economy recovers is in essence, attempting to time the market, which is extraordinarily difficult to do.  Even worse, simply hoping that the economy recovers and that you will avoid losses by selling is speculation and does not involve any true analysis.  The following are some guidelines that I like to follow.

1. UNDERSTAND YOUR FINANCIAL SITUATION

Have a strong understanding of how steady your household income is (future raises, possible fluctuations, and changes in employment).  Have a grasp on your monthly expenses including not only big ticket items like mortgages and taxes, but also entertainment, gifts, and traveling expenses.  You should be able to estimate how much money you have left over to invest every year, after creating an emergency fund.

2. ESTABLISH CONCRETE GOALS

Project how much wealth you would need to accumulate to retire comfortably, taking into account inflation and rises in living costs.  Other goals could include college tuition for the kids or buying a new home or vacation home.  Goals should be realistic and have an estimated price and time horizon.

3. REALITY CHECK

Calculate what rate of return you would need to accomplish your goals.  You may find that buying the perfect house or retiring with houses in Florida and New York is not attainable unless you change your current spending habits.  Evaluate your current financial situation and see if there are places where you can cut spending (restaurants, pricey gifts, traveling).

4. DEVELOP AN INVESTMENT STRATEGY

Your risk preference, financial goals, and time horizon should dictate what type of investment strategy you will use.  If you live a relatively frugal lifestyle and you do not have a taste for the fancier things in life, you may choose to minimize your exposure to risk and invest in Bonds and Treasuries.  If you are relatively young, with a steady flow of income, and have expenses under control, you could take on more risk gain added return in the Stock Market, Futures, and maybe even fund certain startups in addition to investing in Bonds, Treasuries, and Real Estate.  Make sure you modify your strategy and minimize risk as you approach certain target dates when you will need to withdraw funds.

Pay attention to asset allocation and work towards minimizing risk to your overall portfolio, not just through each individual investment.  Make sure you minimize correlation between investments and make sure they are affected by different economic factors.  Diversify across industries and Time.  In Real Estate, diversify by buying properties in different market areas and across different property types (condos, multi-family, single family, apartment complex etc.).

There are all types of investment strategies that will appeal to different types of people with different financial goals and risk preferences.  What is critical is that you manage your finances in a systematic way, seek help from a competent financial advisor, and avoid speculation, especially in the current economic environment.

Photo Credits: Pete Travels, Purpleslog

Tags: diversification, real estate investing, Real Estate Investing, retirement, stocks

If you are a boomer born between 1946 and 1964, there is a pretty good chance, says a new study, that you own a chunk of real estate. In fact, says the Harris Interactive survey sponsered by the National Association of Realtors, some 78 million Americans born between ‘46 and ‘64 now have real estate investments–a figure never before seen in this nation’s history, says the study.

As reported by Kenneth Harney in The Mercury News out of Washington, the study reveals that 96 percent of all boomers believe owning a home is a real smart way to invest their money…and just about four out of five have put their money where their mouth is and currently own their own homes.

The news article says ,”Boomers not only believe strongly in accumulating real estate, but they also intend to keep doing so as they head toward the traditional retirement years.”

Tags: boomers, estate, homes, investment, real, retirement