What is a Reverse Mortgage & How it Works

Reverse mortgage is a loan product that lenders provide to elderly homeowners with home equity as collateral. The product is tailored to supplement the borrower’s income by tapping into his/her home equity while still residing in their home.

Unlike traditional mortgages where the borrower repays monthly installments, with a reverse mortgage he/she receives payment from the lender. The service is known as Home Equity Conversion Mortgage or simply HECM.

Here is all you need to know about the loan and how it works:

Reverse MortgagesReverse Mortgages

Eligibility

The borrower must be a senior who is 62 years or older. For a couple, the younger spouse must meet the age requirement. One has to be the outright owner of the home or have a mortgage whose balance is considerably lower than the home’s value. The home has to be a permanent resident of the borrower and be in good condition prior to applying for the loan.

Since it’s the borrower who gets paid for this kind of loan, credit scores and reports do not play a big role in the qualification. However, he/she must prove the ability to maintain the house and settle housing costs. These include property taxes, insurance, and homeowner’s association fees.

The Loan Amount

The principal amount from a reverse mortgage is dependent on the age of the borrower, current interest rates, and appraisal value of the home as well as the limit set by the Federal Housing Administration (FHA).

FHA insures the loan and as such, it sets the limit on the maximum amount that a home can be mortgaged at. A borrower gets the lesser of the home’s appraisal value or the set maximum claim limit which is currently at $679,650.

An 85-year-old borrower will basically qualify for a higher amount compared to a 70-year-old. The loan amount is usually priced at 42% of FHA maximum limit or appraisal value for 62-year-olds with the percentage going up with the borrower’s age.

Similarly, the more valuable a house is the higher the reverse mortgage. It is upon the borrower to also shop for a lender whose offer carries the lowest interest rates for higher loan amounts.

How a Reverse Mortgage Works

Homeowners get to extract their home equity or a fraction of it depending on the approved loan amount. Home equity, in this case, refers to the difference between the value of your home and any balances on conventional mortgages.

After the loan has been closed, the borrower must immediately pay off any debt left on the traditional mortgage. This frees them up from paying ongoing monthly payments and interests.

The funds can be accessed in a number of ways:

Lump sum payment: Borrowers who opt for this payment must withdraw the whole amount at the close of the loan. This option is popular for homeowners who need to settle other large loans, fund large purchases or settle hefty school fees for their children.

A line of credit: The borrower gets to withdraw as much as they need after the loan has been approved. The remaining funds can then be accessed in any way they see fit. No interest is accrued on the amount that has not been withdrawn/not in use, making it the most popular option.

Monthly Payments: The payment is structured into either term or tenure withdrawals. In ‘term’ payments, the fund is divided by a fixed number of years and you receive the corresponding monthly fixed amounts. Tenure payment, on the other hand, allows the borrower to receive monthly payments for as long as they live in the home.

Combination: Lenders are flexible; they allow borrowers to modify payment to include a combination of any of the above.

Loan Repayment

The borrower can choose to periodically pay off the loan. They can also pay it off from savings or by selling the property. However if the loan is not cleared during the lifetime of the borrower or if they are absent from the house for over 12 months, it becomes due.

It’s upon the heir of the estate to pay the amount owed. In case they choose not to, the lender gets to sell the house and recover the dues with the surplus going to the heir. In instances where sale doesn’t cover the debt, the loss is paid off by HFA who are the mortgage insurers.

Conclusion

Reverse mortgages are some of the useful financial tools that are available to seniors. That said, borrowers need to understand the different aspects and workings of the loan before they apply for one.

Source: creditabsolute.com

Reverse Mortgages: 10 Things You Must Know

Get a large wad of cash! Never make a mortgage payment again! Stay in your home as long as you want! Sounds like a great deal, right? Well, for some older homeowners, a reverse mortgage can be. 

For others, it’s more perilous than promising. If you’re considering a reverse mortgage, there’s a lot you need to know before signing on the dotted line. 

Here’s 10 things you need to know about reverse mortgages. 

What is a Reverse Mortgage?

It’s a loan on your house that lets you tap your home’s equity. Like a cash advance, a bank fronts you the money — either as a lump sum, a line of credit or monthly draws — and you have to repay it eventually, with interest.

Unlike a traditional mortgage, you don’t have to repay the loan during the term of the reverse mortgage. Instead, you or your estate pay off the principal you borrowed and the accrued interest all at once at the end of the loan. Homeowners must be at least 62 and should either own their house outright or have paid off most of the mortgage.

You retain title and ownership of your house. You are still responsible for paying the property taxes and the costs of insurance and repairs. If you still have a regular mortgage, you either have to pay it off before taking the reverse mortgage or use part of the proceeds from the reverse mortgage to retire it.

The most popular type of reverse mortgage is the Home Equity Conversion Mortgage, or HECM, which is insured by the Federal Housing Administration. 

(Private lenders may offer proprietary reverse mortgages but this is a small part of the overall market and these loans aren’t federally insured. Because of that, this article mainly addresses HECMs.) 

How Much You Can Borrow with a Reverse Mortgage

The amount you can borrow, which is called the “initial principal limit,” with a reverse mortgage will depend on several factors, including the age of the youngest borrower and interest rates. The calculation also includes either the appraised value of your home or the HECM mortgage limit, whichever is less. The HECM mortgage limit for 2021 is $822,375, up from $765,600 in 2020. 

Generally, the older you are, the lower the interest rate and the higher the house value, the more money you’ll be able to tap. 

You won’t be able to tap 100% of your equity. The calculation leaves room for accrued interest. Instead, you get a portion of the equity in your home and you pay interest on that.

Getting Money from the Reverse Mortgage

You can take a lump sum, open a line of credit to tap whenever you choose or receive monthly payouts (either for a set number of months or for as long as you live in the house). Or you can choose a combination of those options — say, a lump sum for part of the mortgage with the remainder in a line of credit.

A fixed rate is typically only available if you take a lump sum, which could be suitable to lock in costs for those who want to use all of the money at once. Interest accrues on that amount. 

A line of credit or monthly payout comes with an adjustable rate, which can change monthly or yearly. Ideally, you would only take out only the money that you need. You only accrue interest on funds that are dispersed to you so any untapped money won’t rack up interest. 

Additionally, the unused portion also grows larger over time, generally at the same rate as the loan’s interest rate. Unlike a home equity line of credit, which can be reduced or frozen by a lender, a reverse mortgage line of credit is safe, thanks to mortgage insurance.

Non-Interest Costs of a Reverse Mortgage

There is an origination fee, which is 2% on the initial $200,000 loan and 1% on the balance, with a cap of $6,000. You’ll also pay closing costs, such as title insurance and recording fees, that will likely run several thousand dollars.

You must also pay insurance premiums. The FHA insurance guarantees that you will receive your money and that the lender later receives its money. You’ll be charged an upfront premium of 2% of the home value, plus an annual 0.5% premium of the mortgage balance.

Finally, the lender may charge a monthly servicing fee of up to $30 if the loan has a fixed-interest rate or if it adjusts annually. The servicing fee can be no more than $35 each month for loans with a rate that adjusts monthly. The monthly servicing fee will be added to your loan balance, or the lender can include the servicing fee in the mortgage rate. 

It pays to shop around. Fees set by the government won’t vary, but some costs, such as the interest rate and the monthly servicing fee, can differ by lender. Compare reverse mortgages from at least three lenders. Lenders will issue you a “total annual loan cost,” or TALC, for each option to help you compare costs.

Repaying a Reverse Mortgage 

The money does not have to be paid back as long as the homeowner remains in the house and keeps up with taxes, insurance and repairs. Generally, repayment is triggered when the homeowner dies, sells the house or moves out for at least 12 months. If a couple owns the home and one spouse dies, the surviving spouse can stay in the home without having to pay back the loan until he or she dies, sells or moves out for 12 months.

When it’s time to repay the loan, you or your estate will pay the principal you tapped and the accrued interest. Be aware that the interest expense can really accumulate. If you take out the loan in your 60s and stay in your house until your 80s, the interest owed on the loan could be significant. After the loan is paid off, there could be little or no equity left to use, say, for a move to assisted living.

However, HECMs’ “non recourse” feature means you never have to pay back more than the house is worth at the time of sale. If the debt exceeds the sales price, federal mortgage insurance covers the shortfall.

As for taxes, because the reverse mortgage is a loan, the money you receive is not taxable income. But you can’t deduct the interest on your tax return each year. In the year the loan is paid off, you or your estate can write off at least part of the interest (see IRS Publication 936, Home Mortgage Interest Deduction).

Options for Your Heirs

For a HECM, your heirs will have 30 days after receiving the due and payable notice from the lender to buy your house, sell it or turn it over to the lender after you pass away. But they could get up to 12 months to secure financing to buy the house or sell it. They would need to work with the lender to get additional time. 

To keep the home, your heirs will have to repay the full loan balance of the reverse mortgage or 95% of the home’s appraised value, whichever is less, for a HECM. 

Refinancing a Reverse Mortgage

You can refinance a HECM but only in certain circumstances. You have to wait at least 18 months before refinancing. The funds that would be available to you would have to be at least five times the refinancing costs. And the additional cash you would get from the refinance has to equal at least 5% of the new loan’s proposed principal limit.

Consumer Protections for Borrowers 

You can back out of the loan within three days of signing the paperwork. Notify your lender of your decision in writing by sending a letter through certified mail and ask for a return receipt. 

Before you can apply for a HECM, you have to meet with a counselor from a government-approved housing counseling agency. Some private lenders require this as well. The Consumer Financial Protection Bureau has a search option to find a counselor near you. These agencies normally charge a fee, usually around $125, which can be paid for from the loan proceeds. However, you also can’t be turned away because you can’t afford the fee. 

Lenders also have to complete a financial assessment of borrowers to ensure they will be able to pay their property taxes and homeowners insurance. This is meant to help limit the number of foreclosures that occur. 

Watch Out for High-Pressure Sales Tactics 

You should be wary of any unsolicited sales pitches or offers for a reverse mortgage. You should be skeptical if a salesperson pushes you to take out this type of loan or gives you suggestions on how to spend the money from a reverse mortgage. If the person suggests investing the funds in certain financial products, such as long-term care insurance or an annuity, you need to be cautious. Never buy a financial product you don’t fully understand. 

Some salespeople for home improvement companies may suggest this type of loan as a way to pay for upgrades. If you think that’s the right decision, be sure to shop around and calculate the costs associated with a reverse mortgage along with the repair expenses to get a clear picture of the overall costs.  

How to Decide If a Reverse Mortgage is Right for You 

Start by thinking about what you plan to do with the proceeds. For instance, a reverse mortgage might be a good fit for a senior who wants to age in place, with the loan proceeds paying for home health care, instead of moving to assisted living. Some financial planners recommend a reverse mortgage as a line of credit to cover expenses during market downturns. This strategy, which is known as a “standby reverse mortgage,” allows the borrower to pay for their expenses until their portfolio recovers.

If you need financing to pay for something like a home improvement, another type of loan might be better, such as a home equity line of credit. Be sure to consider all of your options before taking out a reverse mortgage. Consider discussing the option with a trusted family member or financial advisor. 

Source: kiplinger.com

13 Bad Investments for Your Retirement

Stressed man made financial mistake
Shyamalamuralinath / Shutterstock.com

This story originally appeared on NewRetirement.

We have a lot of choices about where to invest our money, both before and after retirement. Some options are clearly bad investments. Others seem like a good bet, but they probably aren’t. While we would all like to find a shortcut to massive wealth, a more steady approach is probably the best route to a secure retirement. Save early and regularly, and invest surely.

You may know someone who has a friend who won the lottery, bought a Picasso at a garage sale or who invested on the ground floor in an amazingly successful company. However, those stories are the exception, not the rule.

The following advice came to us from Mr. Henry K. “Bud” Hebeler, a legendary retirement guru who developed his own special methods and gave numerous seminars on retirement until his death in 2017.

Hebeler learned a lot of bad investment lessons from both his own and his associates’ experiences, and he put together a list of 13 truly “unlucky” investments that you should avoid. The following commonsense advice is in Bud’s own words.

For more, read “28 Retirement Investing Tips from Today’s Financial Geniuses.”

1. Livestock and commodities: There’s no “moo” in money

Cow
Supertrooper / Shutterstock.com

When I was a kid, my father had a bad experience with an investment to raise animals. He told me frequently, “Don’t invest in anything that eats.” One of my business associates told me his worst experience was investing in cattle, and he said he wished he had heard my father’s words.

I took my father’s advice when I was approached by a friend who had a great sales pitch. He wanted some seed money for a catfish farm. His fish and the farm went belly-up, one in the water and the other in bankruptcy.

Another business associate got involved with options trading and speculated in eggs. He was at the end of the chain of trades and ended up with a boxcar full of eggs that he had to distribute.

Once, I met with a member of the Chicago Board of Exchange. His advice was, “Don’t invest in commodities. I can make money from fees on every trade, but it’s very unlikely for the novice.”

2. Collectibles

Toy Collection
Tinxi / Shutterstock.com

My wife and her friends bought hundreds of Beanie Babies, jokingly speculating on their future price. She and her friends still laugh about it, but the Beanie Babies wait in a chest for our great-grandchildren.

More seriously, an eye doctor of mine was an expert in ancient armor. I believe he actually may have been successful at that, but he ended up leaving the country to avoid a large number of malpractice suits. Investing in valuables — from diamonds to art — requires real expertise and very close ties with buyers.

3. Partnerships

handshake
pikcha / Shutterstock.com

I personally have been in about a dozen of these. I’ve lost money on many, and I was very fortunate to make up for the losses with one of them.

Tax returns are much more complicated, especially with some oil and gas ventures. I still have a real estate partnership that I have great difficulty selling. It makes a good return but does not fit in at all with our estate plans.

And I haven’t been able to get the general partner to sell after almost 40 years. Stick with public investments where the market prices are posted and you can easily sell a part.

4. Complicated investment contracts

Tearing up contract
Brian A Jackson / Shutterstock.com

The small print often exceeds the large print because it explains how you are the responsible party. By reading carefully, you’ll find how the seller makes its money.

You likely have seen some get-rich-quick ads on television, or financial articles written by shills of the company. Read the small print, whether it’s a life insurance product, specialized annuity, reverse mortgage or any other investment contract. If you see the phrases, “Ever upwards, never downwards” or “convert your …..,” they may be red flags. Don’t understand the small print? Consult with a certified financial planner (CFP).

5. Specialized funds

Investing
crazystocker / Shutterstock.com

You are making a big bet that you know what will happen in the future when you pick funds specializing in a market sector.

I had a lot of experience trying to predict the future when I was Boeing’s officer responsible for its strategic planning for six years. Stick with broad-based index funds. Over the long haul, you’ll do better and feel more comfortable. The major components of those specialized funds are likely components of the indexes anyway.

6. Startups

A creative business team
Jacob Lund / Shutterstock.com

When Boeing had its big crash (and Seattle was going down with it), there was a large billboard that said, “Will the last person out of Seattle please turn off the lights?” I was appointed by the governor to be on his economic development council. We joined with a number of bank officers to try and promote some new businesses.

Most of the choices we made were marginal at best; the one that most of the members thought had the least chance turned out best. You need lots of money to really know what you are doing and succeed in this.

7. Portfolios of individual stocks

Stock market trendline
AshDesign / Shutterstock.com

When I was a young man, and before I had a CFP help me with investments, I took the advice of a stockbroker and from several financial magazines.

Supposedly, these were sure-winner stock picks. I did horribly.

8. Real estate: flip or flop?

homeowners
Alexander Raths / Shutterstock.com

I know a number of people who have done extraordinarily well in various kinds of real estate, but it’s their full-time job. They are good at it and are able to get low-interest financing.

Flipping houses has proved to be a disaster for most that try it. They often end up with bills they cannot afford.

Stick with low-cost diversified real estate investment trusts (REITs) index funds that have a daily market value. You can sell a small part when needed.

9. Timeshares

A timeshare building in Orlando, Florida
Ivan Cholakov / Shutterstock.com

Vacation properties that offer you points or certain periods of time are better lifestyle purchases than investments. They presuppose that you have the ability to know their use often a year in advance and that you will use them for many years.

They are difficult to sell and carry annual charges. Heirs often do not like their obligations.

10. Illiquid investments

An investor panics over a market crash
Gearstd / Shutterstock.com

Always consider if investments are “liquid.” These are purchases that have a published market value and generally are divisible so that you can sell only a part.

Antiques, art, collectibles, timeshares, most partnerships and real estate are not liquid and make poor investments for those who are not otherwise wealthy. Think carefully about considering the total value of your home as a retirement investment.

11. Don’t try to predict the future

Bad investment
vchal / Shutterstock.com

There is a good reason that economic pundits finish their pitch with something like “On the other hand ….”

Even this grandpa here can’t see the future and knows that predicting when the markets will fall or grow is futile. I was lucky in many respects for our long stretch of personal investment successes during the six years I was responsible for Boeing’s strategic planning.

Furthermore, I was well-connected in the economic, academic, business and government worlds, and I was paid to know what was happening. Still, all that would not guarantee that I would be right.

12. Free advice

Monkey Business Images / Shutterstock.com

Do not listen to financial advice from television ads, long internet infomercials, your beautician or drinking buddies. Authentic-sounding financial and media pundits can be just as bad. I read numerous financial publications and have written articles in them as well.

13. Lottery tickets

Lottery ticket
Sherry Yates Young / Shutterstock.com

There is no harm in spending $1 or more on a lottery ticket so long as you know that it is for entertainment, not investment purposes.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

Costco Mortgage Review: What Don’t They Do?

Costco, the well-known mega wholesaler that runs a chain of membership warehouses internationally, rolled out it’s so-called “Mortgage Services” back in 2011.

Now known as “The Mortgage Program,” their lending partners have funded nearly 200,000 mortgages worth more than $51 billion.

Costco already offers all types of insurance, a co-branded credit card, RV and boat loans, food and drink, jewelry, electronics, not to mention gigantic tubs of mayonnaise.

So what’s the deal here? Why did Costco get into mortgages? Could it really be that profitable?

Costco Is Marketing Mortgages, Not Actually Making Them

  • Just to be clear here, there is no Costco Mortgage
  • Nor is Costco actually originating mortgages on their own (they are NOT a lender)
  • They are simply marketing home loans via their lending partners
  • Because they have a massive stable of customers who are or want to become homeowners

Let me start by saying there is no “Costco Mortgage.” It does not exist.

What Costco’s really doing is marketing a mortgage product on behalf of another company, formerly First Choice Loan Services Inc., and now CrossCountry Mortgage.

CrossCountry actually oversees a group of preferred lenders, including national depository banks and mortgage bankers, such as NASB Home Loans and Consumer Direct Mortgage.

Apparently, Costco doesn’t get paid for the loans that close or receive any sort of loan origination fee, but there’s obviously some financial agreement in place for the partnership.

Costco initially partnered with First Choice Loan Services Inc., a Berkshire Bank subsidiary, but have since switched to CrossCountry Mortgage.

The lender is essentially leveraging the warehouse chain’s loyal and enormous customer base.

That means we should be more concerned about who CrossCountry Mortgage is, which is the company that’s really doing the mortgage lending here, including taking the loan application and underwriting, processing, and funding it.

CrossCountry Mortgage is based out of Brecksville, Ohio, and has been around since 2003. They have 200 branches nationwide and are licensed in all 50 states.

Despite only being around since 2003, they’ve grown exponentially and now have a team of 3000+ employees that produce $14+ billion annually. Thanks Costco!

They are a direct lender that offers all types of home loans, including conventional stuff backed by Fannie Mae and Freddie Mac, along with government loans like FHA and VA loans.

Costco apparently oversees the company (and the other lenders in The Mortgage Program), holding them to rigorous standards to ensure they protect their good name and their own customers, though they don’t endorse them or hold themselves responsible.

Costco Lender Partners Now Offer Jumbo Mortgages

  • Early on Costco didn’t offer jumbo loans
  • Which is ironic given the company’s typically economy-sized offerings
  • But you can now get anything from a conforming loan to a jumbo loan
  • Or an FHA loan, USDA loan, VA loan, and even a renovation loan

Ironically, when the Costco Mortgage program first started they only seemed to offer conventional loans, FHA loans, and VA loans.

There was no mention of jumbo loans, despite Costco specializing in all things jumbo, like massive tubs of mayonnaise.

So if you needed a big home loan, you’d be out of luck. But times have changed and CrossCountry now advertises jumbo loans up to $5 million dollar loan amounts.

Anyway, aside from purchase money mortgages and refinance loans, they also offer renovation loans, including the popular FHA 203k loan and the Fannie Mae HomeStyle Renovation Mortgage.

And they’re all about streamline refinances, such as the FHA streamline refinance and the VA IRRRL refinance.

Older Costco members (62+ years of age) might be interested in their reverse mortgage program as well.

Current Participants in The Mortgage Program from Costco

  • CrossCountry Mortgage
  • Lending.com (formerly eRates Mortgage)
  • NASB Home Loans
  • Strong Home Mortgage
  • Consumer Direct Mortgage (a division of FirstBank)
  • NBKC Bank
  • Mutual of Omaha Mortgage

Former Participants in the Costco Mortgage Program

– Bank of Internet USA
– Berkshire Bank
– CapWest Home Loans
– J.G. Wentworth Home Lending, LLC
– PennyMac Loan Services, LLC

Costco Mortgage Works More Like a Mortgage Lead Service

  • It’s more of a lead acquisition program than it is a unique home loan lending program
  • Costco is just playing matchmaker by connecting their customers with a mortgage lender
  • Similar to what they do with most of the products they sell on behalf of manufacturers
  • But they do offer some special benefits for Costco members

In a way, the Costco Mortgage program works kind of like a mortgage lead service.

Costco members enter in their personal details, including property and loan information, and are then presented with a number of mortgage rate quotes from CrossCountry Mortgage and other affiliates.

If you happen to like their rates, your lender fees will also be discounted because Costco caps them.

In terms of financing options, Costco has nothing to do with what is and isn’t offered. They don’t set the minimum down payment or get involved with any other underwriting guidelines.

The same goes for mortgage rates – Costco doesn’t set them or have anything to do with them, but they say they’re “competitive.”

As noted, they simply let CrossCountry Mortgage and other lenders advertise their loan products to their client base.

Costco Mortgage Lender Fees Are Capped

  • Costco provides reduced lender fees for its members
  • Which includes things like application, underwriting, and processing
  • But not third-party costs like appraisal and title/escrow fees
  • Executive members only pay lender fees of $350 or less
  • Gold star members pay lender fees of $650 or less

One plus to the program is that lender fees are capped for Costco members, with Executive Members paying $350 or less and Gold Star Members paying $650 or less.

Be sure to compare this to standard lender fees, which can range from zero to a very high number depending on the circumstances.

Also look beyond lender fees and consider the mortgage interest rate along with any closing costs charged.

While we know there are some potential savings here, it really depends what the interest rate is that goes along with those fees. Closing costs can’t be viewed in a vacuum, we need context.

Costco Mortgage Rates

Remember, Costco Mortgage doesn’t exist, so that means there aren’t “Costco Mortgage Rates.”

Instead, there are mortgage rates offered by lenders participating in The Mortgage Program for Costco.

As such, their rates will likely vary from lender to lender, and by unique loan scenario.

The good news is you should be able to get quotes from multiple lenders in one go, which is sort of like using a mortgage broker.

Then you can compare these rates and determine who to use, knowing they all cap lender fees since they’re part of the Costco program.

Just remember to consider lenders outside the Costco program as well to really see where they stand.

Costco Mortgage Reviews

On Trustpilot, The Mortgage Program for Costco Members currently has a 4.8-star rating out of 5 based on nearly 4,000 customer reviews.

That is an excellent rating, and a generally good sign that customers are happy with the lenders Costco has partnered with.

As noted, they work with a handful of lenders, so you may want to check out their reviews separately as well.

For example, CrossCountry Mortgage has a very solid rating of 4.97 out of 5 stars on Zillow based on nearly 10,000 reviews.

And NBKC Bank has a 4.93-star rating out of 5 on Zillow based on 9,600+ reviews.

Similarly, NASB Home Loans has a 4.95-star rating out of 5 on Zillow based on more than 1,000 reviews.

Be sure to check out the reviews of the lender partner you eventually consider to see where they stand.

Should You Use Costco to Get a Mortgage?

  • Costco is yet another option to consider when searching for a mortgage
  • But I wouldn’t rely on Costco alone to find the perfect home loan
  • If you don’t shop around elsewhere you won’t know if it’s a good deal or a bad one
  • Always take the time to obtain multiple quotes to ensure you properly comparison shop

Back in the day, there was one thing that stood out to me in the fine print that I didn’t love.

This is actually no longer on their website, but at one point they noted that lenders are “held to very strict pricing and fee standards which limit their ability to negotiate a lower fee or rate.”

To me, that told customers to just accept the rate they were given because it was already rock bottom.

While it’s not there anymore, and hopefully that’s no longer their position, I always recommend negotiating your mortgage rate, no matter how good or low it might be. There’s always room to go lower or to go elsewhere.

All in all, it appears as if Costco is just another avenue to go down while shopping for a mortgage, which isn’t necessarily a bad thing.

More options are generally a good thing.

I certainly wouldn’t blindly rely on Costco to find you the best mortgage out there. If you’re a Costco member, sure, give them a chance to beat other lenders.

But don’t just contact Costco and call it a day. You should also shop around beyond Costco to make sure you exhaust all lender options.

This includes checking out other online lenders, visiting a local bank or two, a credit union, and speaking with a mortgage broker or three. Don’t cut corners!

Getting a mortgage is a big deal, and even a slight change in interest rate can mean thousands in savings or costs over the life of your loan.

Pros and Cons of Costco Mortgage

The Good

  • Home loans are originated by CrossCountry Mortgage, or a similarly high-rated mortgage lender
  • Can apply online or at a brick-and-mortar branch
  • They offer a digital mortgage application powered by Blend
  • Lots of loan types to choose from including jumbos
  • Lender fees are capped at $350 for Executive Members and $650 for Gold Star Members
  • Licensed in all 50 states and the District of Columbia
  • More than 92% of Costco members rated The Mortgage Program as excellent, very good, or good

The Maybe Not Great

  • The mortgage doesn’t actually come from Costco (just their lender partner CrossCountry Mortgage or another affiliate)

Read more: What mortgage rate can I expect?

(photo: greenwenvy08)

Source: thetruthaboutmortgage.com

Long-Term Care Options and How to Plan for the Costs

Think for a minute about all the things you did when you woke up this morning. You probably got out of bed, walked to the bathroom, cleaned yourself up, brushed your teeth, got dressed, made yourself some breakfast, and headed out the door to go to work. These activities of daily living are so routine, you likely did them without even thinking about it.

Now imagine that you couldn’t do these things on your own. It could be because you’ve had an accident, you’re recovering from an operation, or you have an illness that limits your mobility. Whatever the reason, you now need help from another person to do many or even most of your basic daily activities — and you’ll continue to need it for weeks, months, or even years.

This kind of help is called long-term care, and there’s a good chance you or a close loved one will need it at some point in your life. According to the U.S. Department of Health and Human Services (HHS), a person who turned 65 today has almost a 70% chance of needing some form of long-term care in the future.

Needing long-term care isn’t just a physical burden; it’s a financial one too. According to the 2020 Cost of Care Survey by Genworth Financial, professional long-term care can cost anywhere from $1,603 to $8,821 per month. Most employer-sponsored health insurance plans don’t cover these costs, and even Medicare provides only limited coverage.

If you don’t want to risk being bankrupted by long-term care costs in the future, you need to do some planning now. Even if you don’t think you’ll need long-term care for many years to come — or at all — it’s better to think about it ahead of time than to take a chance on having to deal with both a health crisis and a financial crisis at once.

Options for Long-Term Care

When many people hear “long-term care,” they immediately picture a nursing home. However, it’s possible to receive long-term care in a variety of settings, which differ widely in terms of both comfort and cost.

The main forms of long-term care are:

1. In-Home Care From Relatives

Dealing with a long-term injury or illness can be a lot less stressful in your own home with familiar things and people around you. Thus, one common type of long-term care is to have a relative or friend tend to your needs at home.

While unpaid in-home care is easiest on the person receiving care, it can be difficult for the caregiver, both emotionally and financially. A 2018 Genworth study found that more than half of family caregivers had high levels of stress, and roughly one-third said their careers had suffered on account of their caregiving duties.

2. Home Health Aides

If you want to receive care at home without putting a burden on your relatives, you can hire someone to help you. A home health aide doesn’t provide medical care but can help with such daily tasks as bathing, dressing, and eating. The 2020 Genworth survey found that the median cost of a home health aide in 2020 was $24 per hour, or $4,756 per month.

3. Homemaker Services

Some people don’t need help with bathing or dressing, but they still need someone to handle daily chores they can’t manage on their own, such as cooking, cleaning, and running errands. For this, you can hire a homemaker service, which costs a bit less than a home health aide. Genworth put the median cost of homemaker services for 2020 at $23.50 per hour, or $4,481 per month.

4. Adult Day Care

Some older people can still get up and about, but they can’t be on their own for long periods of time. An adult day care program is a place where adults can go during the day and spend time with others, with a caregiver there to keep an eye on them. Adult day care programs can offer structured activities, meals, transportation, and sometimes health services. They’re cheaper than most long-term care options, at around $74 per day or $1,603 per month, according to Genworth.

5. Assisted Living

Home health aides can help with daily activities, but they can’t provide actual medical care. People who need regular medical supervision are better off moving to an assisted living facility. This is a place where people can live on their own in private apartments and have access to both personal care and medical care on site. The median cost for an assisted living facility was $4,300 per month in 2020, according to Genworth.

6. Nursing Home

Nursing homes provide the highest level of supervision and care. These all-inclusive facilities offer room and board, personal care, supervision, activities, medication, rehabilitation, and full-time nursing care. This level of care comes with a high price tag, however. Genworth found that in 2020, a semi-private room in a nursing home cost $7,756 per month, and a private room cost $8,821 per month.


Government Programs

Most Americans can’t afford to pay for professional long-term care out of their own pockets. A 2020 survey by The Ascent found that over half of Americans have less than $5,000 in savings. Roughly one-third have less than $1,000 — not enough to pay for even a single month of long-term care.

Government programs, including Medicare and Medicaid, can help you meet some of the costs. However, these programs offer only limited aid. Each one has specific rules about who qualifies for benefits, what services it covers, how long you can receive aid, and how much you must pay for on your own. If you need long-term care, it’s certainly a good idea to look at these programs first to see what they cover, but it’s a mistake to rely on them to pick up the whole tab.

Medicare

In most cases, Medicare does not include any long-term care benefits. However, there are several specific exceptions:

  • Skilled Nursing Facility (SNF) Care. If you come out of the hospital after a stay of at least three days, Medicare provides partial coverage for up to 100 days’ worth of medically necessary care while you recover. To receive this coverage, you must enter a Medicare-certified SNF or nursing home within 30 days after you leave the hospital. Medicare covers all of your treatment there for the first 20 days of your stay. Beginning on day 21, you must pay a daily copayment, which is set at $185.50 in 2021. Medicare covers any cost beyond this copayment up through day 100. If you still need care after that, you’re on your own.
  • Rehabilitation. If you have a condition that requires ongoing medical care to help you recover, Medicare provides partial coverage for a stay in an inpatient rehabilitation facility. It covers the cost of treatments such as physical therapy, meals, drugs, nursing services, and a semi-private room. However, you must pay an out-of-pocket cost for this care that depends on the length of your stay. For the first 60 days, you pay a $1,364 deductible. This cost is waived if you’ve already paid for a hospital stay for the same condition. For days 61 through 90, you pay $341 per day. After day 90, you start using up your “lifetime reserve days.” You have only 60 of these days over your lifetime, and each one costs you $682. If you still need care after your 60 days are used up, you must pay the full cost. Also, any extra costs during your stay — such as a private room, private duty nursing, or a phone or television in your room — are your own responsibility.
  • Home Health Services. You can also use Medicare to pay for in-home care for a specific illness or injury. This includes part-time or intermittent skilled nursing care, physical or occupational therapy, and speech-language pathology. To qualify as part-time, your care must cover less than eight hours per day, or less than seven days per week, over a total of three weeks or less. If you are receiving this type of in-home care, Medicare also pays for additional, basic care from a home health aide. Medicare does not cover care from a home health aide if that’s the only care you need, and it does not cover homemaker services under any circumstances.
  • Hospice Care. People who are terminally ill sometimes choose to spend their last days in hospice care. Hospice treatment focuses on relieving the patient’s pain, rather than trying to cure them. Medicare covers hospice care for patients who are terminally ill, are not seeking a cure, and do not expect to live more than six months. Patients can receive this kind of care in their own homes, a hospital, or another inpatient care facility.

For more details about what Medicare covers, see the Medicare website.

Medicaid

Unlike Medicare, Medicaid covers all types of long-term care. This includes both in-home care — such as a visiting nurse or a home health aide — and care in facilities such as nursing homes. You can get home health aide services from Medicaid even if you don’t need skilled care as well, and you can get care in a facility even if you aren’t recovering from a hospital visit.

However, Medicaid has strict limits on eligibility. You can’t receive Medicaid benefits if your income is above a certain level, which varies from state to state. Also, in some states, you cannot qualify unless you have dependent children. You can find the limits for your state through your state’s Medicaid website.

Veterans’ Benefits

The Department of Veterans Affairs (VA) covers the full cost of long-term care for veterans who have disabilities resulting from their military service. It also covers costs for veterans who can’t afford to pay for their own care. Other veterans receive some coverage, but they must pay a copayment. According to the VA site, the current copayments for long-term care are:

  • $97 per day for inpatient care, such as nursing home care
  • $15 per day for outpatient care, such as home health care or adult day care
  • $5 per day for domiciliary care in a special facility for homeless veterans

The VA site has more information about the health benefits available to veterans and how to qualify for them.

OAA Programs

Some states have their own separate programs to help provide care for adults over age 60. These programs get funding from the federal government under the OIder Americans Act (OAA). The OAA supports a wide network of state, local, and tribal agencies called the Aging Network. It works with tens of thousands of service providers and volunteers to deliver various types of care, including:

  • Meal delivery
  • Transportation
  • Home health services
  • Home health aide and homemaker services
  • Adult day care
  • “Respite care,” which gives family caregivers some time off from taking care of an older relative
  • Help using other government benefits

You can find programs in your area through Eldercare.gov.


Products to Help You Pay for Long-Term Care

Government programs don’t cover everybody, and the coverage they offer isn’t always enough to pay for the full cost of long-term care. To make up the difference, some people carry long-term care insurance, which provides coverage for this specific type of care. Others rely on other financial products designed for senior citizens, such as annuities and reverse mortgages, to cover their costs.

Long-Term Care Insurance

Long-term care insurance, or LTC insurance, works like other types of insurance. You pay a premium each month to the insurer, and if you ever need long-term care, it covers the cost. However, one big difference between this and most other types of insurance is that you have to qualify to buy a policy. If you’re already in poor health, there’s a chance you won’t be able to get a policy — and if you do, you’ll have to pay a steep price for it.

There are several ways to buy a long-term care insurance policy. The most common sources for policies are:

  • Insurance Specialists. You can buy LTC insurance through financial professionals such as insurance agents, brokers, and financial planners. To find insurance companies that offer LTC insurance, visit your state insurance department or do an Internet search for “long-term care insurance” plus the name of your state.
  • Employers. Although standard employer-sponsored health care plans don’t cover long-term care, many employers — including the federal government, many state governments, and some private companies — offer LTC insurance as an add-on that employees can purchase separately. To find out whether your employer offers this coverage, check with your pensions or benefits office.
  • Organizations. Some labor unions and other professional or trade organizations, such as the National Education Association, offer LTC insurance as a benefit to their workers. Membership organizations such as alumni associations or service clubs like the Lions and Elks can also take part in group plans.
  • State Partnerships. In some states, you can purchase LTC coverage through a State Partnership Program. These programs provide benefits partly through private long-term care insurers and partly through Medicaid. You can learn more details about these programs from the Department of Health and Human Services (HHS).

Although long-term care coverage can protect you from devastating long-term care costs, most Americans don’t carry it because of its high cost. According to the American Association for Long-Term Care Insurance (AALTCI), the typical annual premium for an LTC policy ranges from $1,400 to $3,100. This annual cost varies based on factors such as age, health, gender, location, and amount of coverage.

Financial planner David Demming, speaking with Policygenius, says LTC insurance is most likely to be a good deal for people aged 50 to 55 with a net worth between $1 million and $3 million. That’s enough money to afford the premiums, but not enough to cover the full cost of long-term care. To get a clearer idea of what LTC policy pricing could be for you, check out online calculators like this one from Genworth.

Annuities

Some people choose to fund their long-term care through an annuity, a financial product that pays out a fixed sum every year over a specific period. There are three kinds of annuities you can use for this purpose:

  • Immediate Annuities. With an immediate annuity, you pay a one-time premium, and in exchange the company pays you a fixed monthly benefit. This benefit can last for a specific period of time or the rest of your life. One advantage of an immediate annuity is that anyone can buy one, regardless of health status. This makes it a good option for people who no longer qualify for LTC insurance due to poor health. However, the fixed monthly sum you get might not be enough to meet your long-term care costs, and inflation can eat into its value.
  • Deferred Annuities. You can buy a deferred annuity with either a one-time payment, like an immediate annuity, or a series of regular payments. The money you pay into the annuity earns interest and grows tax-free. It doesn’t start paying out a monthly benefit until a specific date, such as your 65th birthday.
  • Long-Term Care Annuities. A long-term care annuity is a deferred annuity with a long-term care rider. This type of annuity doesn’t pay out until you need the money for long-term care costs. To collect the monthly payment, you must be diagnosed with a medical condition that requires long-term care, such as Alzheimer’s disease. According to HHS, this type of annuity is usually available only to people age 85 or younger who meet certain health requirements. However, according to SmartAsset, it’s sometimes easier to get approved for a long-term care annuity than for LTC insurance.

Depending on your situation, an annuity can be a cheaper way to cover long-term care costs than LTC insurance. However, it typically requires a large up-front payment, which is even higher if you already have health issues. Also, annuities can have a complicated effect on your taxes — HHS recommends consulting a tax professional before you buy one.

Reverse Mortgages

Another way to pay for long-term care services is with a reverse mortgage through LendingTree. This is a special type of home equity loan available only to homeowners age 62 and up, which allows you to get cash out of your home without giving up your title to it.

The house remains your property until you die. At that time, it goes to the bank unless your heirs choose to pay off the amount you’ve borrowed and keep the house. Otherwise, the bank sells the house and keeps the amount you owed at the time of your death. Any cash beyond that balance goes to your heirs.

There are several ways to get cash from a reverse mortgage. You can get one large lump-sum payment, a regular monthly payment, or a line of credit you can draw on as needed. The second two options are most useful for paying long-term care expenses. As long as you spend the payments in the same month you receive them, the money is not taxable income and doesn’t affect any government benefits, such as Social Security, Medicare, or Medicaid.


Long-Term Care Planning

Dealing with long-term care can be an emotional and financial burden, both for you and for your family. The best way to lighten that load is to plan ahead. By making your plans early, you’ll have plenty of time to do research, make decisions, and buy traditional long-term care insurance or any other products you need to cover the costs.

1. Research Your Options

Start by looking into the options for advanced care in your area. Check the phone book or do an online search to find out what choices you’re likely to have for assisted living and nursing homes, as well as home health aide and homemaking services. The Genworth Cost of Care Survey tool can help you estimate what these services cost now and what they’re likely to cost in the future. You can also check the costs for services in other areas to figure out whether relocating would save you money.

2. Talk to Your Family

Once you have some idea of available options, talk to your family members and get their input. Set aside a time when you can talk everything over in person without having to rush. Here are some points to discuss:

  • Your Lifestyle. Discuss the way you live now and how you expect to live in the future. For instance, if it’s important to you to stay at home and live independently, let your family know that. Tell them about your priorities, and find out what’s important to them, as well.
  • Your Care Options. Show your family the research you’ve done on care options in your area. Tell them how you’d prefer to receive care and whether you have a specific provider in mind. Also, find out how much of your care your loved ones are able and willing to take on themselves. If you have several relatives who could help you, talk about which specific responsibilities each of them could handle.
  • Your Finances. Once you’ve considered what kind of care you want, talk about what it’s likely to cost. Let your family know how much money you can set aside now toward your future care needs, and find out if any of them are willing to contribute.
  • Medical Care. Make sure your family knows your health history in detail so they can supply it to a doctor if they need to. Also, make sure they know how to contact all of your current medical providers.
  • Legal Issues. Decide who should be responsible for making medical decisions for you if you can’t make them yourself. Use this information to set up a durable power of attorney for the future. Also, talk to your loved ones about your wishes for end-of-life care. If you already have a living will, tell them what it says and where to find it; if you don’t have one, make plans to set one up.

3. Calculate the Cost

Now that you have some idea who will provide care for you when you need it, the next step is to figure out how much it will cost. Even if your family has offered to provide unpaid care for you when you need it, there could still be some cost involved. For instance, you could choose to hire a house cleaning service so your loved ones won’t be responsible for all the housekeeping chores in addition to your care.

If you’re planning to pay for professional long-term care services, think about how long you’re likely to need them. According to the HHS, people who require long-term care use it for an average of three years. This includes an average of two years of in-home care and one year in a long-term care facility. About one in five people need care for more than five years.

To figure out the total amount you’ll need for long-term care costs, multiply the cost by the expected length of care. For instance, suppose a home health aide costs $60,000 per year and assisted living costs $90,000 per year. If you expect to need two years of home health care and one year in assisted living, you must save up a total of $250,000.

If the total cost looks like more than you can possibly afford, look for ways to save on long-term care. This could include relying on family care, negotiating prices, getting help from government programs, or relocating to a cheaper area.

4. Make a Plan to Cover the Costs

Once you have an idea of how much money you’ll need for long-term care, you can start figuring out how to pay for it. If your income and assets are low enough, you can look to Medicaid for help when you need care. State government programs could also provide some help.

By contrast, if you have a lot of liquid assets — that is, cash, retirement savings, and other assets you can easily convert to cash — you might be able to pay for your care out of pocket. Financial planners interviewed by Policygenius say this is most practical for people with a net worth of at least $3 million.

If you’re somewhere in between those two extremes, you’ll need some other way to meet the costs of long-term care. That could mean buying long-term care insurance, investing in an annuity, or taking out a reverse mortgage. A financial planner can help you compare these options and decide which one is best for you.

5. Put Your Plan in Writing

After you’ve come up with a plan to meet your long-term care needs, the final step is to put it in writing. Having a written plan gives your family something to consult if there’s ever any confusion or uncertainty about your wishes.

If you’ve decided to make a living will or set up a durable power of attorney, these documents should be part of your written care plan. Consult a lawyer to help you set these up. Give a copy of the entire plan, including the legal documents, to any relatives it could affect.

Putting your plan in writing doesn’t mean it’s set in stone. If your health or financial situation changes in the future, your long-term plans might need to change too. Update your plan as needed, and make sure your relatives always have the latest version.


Final Word

If you’re young and healthy, you may feel like it’s too soon to start thinking about long-term care. Since you probably won’t need it for many years, you figure you can just wait and deal with it when the time comes.

However, there are several good reasons why now is exactly the right time to think about it. First of all, the future is unpredictable. Even young people can suffer injuries or develop illnesses that keep them off their feet for months.

Also, LTC insurance gets more expensive and harder to obtain as you age. If you decide to wait until you’re 65 before buying a policy, it could already be too late to qualify. And even if you can get one, you’ll pay a much steeper rate for it than you would if you’d bought it 10 years earlier. So it makes sense to start thinking about this type of insurance and decide whether it’s for you before you hit age 55.

Finally, if you put off thinking about long-term care until you actually need it, you’ll have to make a whole lot of important decisions in a hurry. You could end up making choices that aren’t best for you because you don’t have time to weigh the options. By avoiding procrastination and thinking it through now, you can ensure that when — or if — you finally need long-term care, it will be as easy as possible for you and your family.

Source: moneycrashers.com

Didn’t Save Enough for Retirement? 10 Tips for Making it Work

If you think you haven’t saved enough for a truly secure retirement, think again.  The impossible could become possible with these 10 creative ways to retire.
ways to retire

You see, saving diligently your entire life and then quitting work to play bridge is only one way to get to retirement. And, the odds are that it is not YOUR way.

There are literally of hundreds if not thousands of different levers that can be used to pull off financial independence in your 50s, 60s and beyond.

Here are 10 ways to retire: even without adequate savings:

If you are emotionally or psychologically ready for retirement, but your finances are not quite there, you might explore taking a mini retirement – an extended (3-12 month) vacation from work.

Many people nearing retirement age find that an extended break from work is enough to recharge and re-energize.  The trick is convincing your employer to let you have this precious time off. According to the Society for Human Resource Management, unpaid sabbatical leave is offered officially by only 12 percent of employers and only 4 percent of employers offered paid leave programs.

However, it may be worth exploring your individual situation with a human resources manager.

Quitting your job with the hopes of finding a similar job upon your return is another option. However, many people who take a retirement gap year actually discover an encore career and new passions during their mini retirements.

If this idea interests you, learn more about taking a sabbatical, mini retirement or gap year…Or, model a gap year in your retirement plan with the NewRetirement Planner.

Living frugally is never going to be easy street, but it can be extremely rewarding to stay focused only on the things that are truly important to you.

Most financial advisors make the assumption that we need to maintain our lifelong spending habits when we retire. While this IS true for most of us, many people redefine themselves in retirement and can dramatically reduce spending – one of the best ways to retire securely.

Retirement is an excellent time to take stock of what you have and what you want. If you know what is most important to you, you can set goals and figure out a way to achieve your highest priority.

A few tips:

Look Carefully at Your Current Spending: When you have established what is important to you, assess your current budget.  Take a really detailed look at everything you spend money on – many people are surprised to learn how much little things that don’t really matter in the long run can add up over the course of a month.

Create Detailed Projections: Use the NewRetirement Planner to create a detailed budget for your projected spending.  When you get specific about your needs and how those will vary over time, you may find out that you are much better off than you thought.

Cut Costs: Figure out how to slash both the big (eliminating your car can create sizeable savings) and small costs.  Get rid of anything and everything not related to your top priorities.

Assess Lifestyle: Take a look at where you live, who you spend time with and what you do on a daily basis.  If these aren’t in line with what is important to you, then make changes that can save you money and help you live a more meaningful life.

Remind Yourself About What is Important: Write down your retirement priorities and refer to them daily.

It may even be helpful to write a list every day about what you want to accomplish and why.

These simple tasks can help you stay on track.

Huh?

Yes, your heard me right. You could perhaps spend more in retirement and still have a secure future.

You see, a lot of people plan retirement thinking that they will keeping spending the same amount forever into the future as they do now.  However, that is probably NOT what is going to happen.

You might need and want to spend more right after you stop working when you are relatively young and want to travel or engage in new hobbies.  But, your spending will likely drop off as you get older.

Thinking through the details of your retirement spending — and giving yourself some leeway to spend more (maybe just a little bit more) in certain years and less (perhaps much less) at other times might just enable you to retire sooner than you had planned.

The NewRetirement Planner helps you think through detailed budgeting for your future and you can vary your overall spending as well as your spending in individual categories to get to reasonable projections.

Many people don’t think much about their home when creating a retirement plan.  However, your home is probably your single greatest expense. According to the Employee Benefit Research Institute, the cost of home and home-related expenses accounts for about 43% of spending for those who are 65 to 74. Reducing this cost could be one of the best ways to retire securely.

Furthermore, if you own your home, then it is also probably your most valuable asset and one that could be used to help fund retirement expenses.

Rent Out Your Home or a Room in Your Home: House sharing is becoming more and more common.  And, Airbnb has absolutely exploded in popularity.  Renting out a room in your existing home (or your whole home when traveling) – either on a permanent or short term basis – can be a great way to help fund retirement because it uses an existing resource to generate money. Learn how to become an AirBnB host here.

Downsize:  If reducing housing costs and releasing your home equity interests you, downsizing may be a great option for you.  When you downsize you sell your existing home and buy or rent something less expensive.  It can be a smaller home or a residence in another community. Learn more in this complete guide to downsizing.

Go Teeny Tiny:  There is downsizing and then there are tiny homes.  If you think that you could live in 500 square feet or less, then a tiny house could simplify your lifestyle and finances.   And, did you know that about 40 percent of tiny houses are inhabited by older adults?  Is a tiny house the big solution for your retirement plan?

Get a Reverse Mortgage: A reverse mortgage is a loan against your home equity. However, unlike traditional mortgages, you do not have to pay back the money borrowed as long as you are living in the home. If you want to stay in your existing home, a reverse mortgage is an interesting way to eliminate ongoing monthly mortgage payments and get access to cash to use for retirement expenses.  More about reverse mortgages.

Hit the Road: A few retirees sell most of their possessions – including the home – and hit the road.  Could you imagine living in a motorhome or houseboat and traveling during retirement?

Besides housing, taxes, debt and Social Security — especially Social Security — are probably the biggest levers you have for making retirement work with inadequate savings.

Debt: Imagine if you could spend the money you are currently using to pay down your debts every month!  Being debt free costs a bit up front, but it is key to being financially free in the long run.  Paying interests on debt is akin to lighting money on fire. Get rid of your debt as soon as possible.

Here are 7 Reasons to Pay Off Every Penny Before You Retire…

Taxes: Being tax smart with your retirement plans can mean more accurate projections and more money in your accounts.  From where you live to income planning, there are many different ways you can reduce your tax burden. The NewRetirement Planner will help you discover opportunities.

Social Security: So, what could you do with an extra $100,000?  A lot I’ll bet!  Waiting to start Social Security could potentially get you that kind of cash.

The longer you wait to start benefits, the more you will receive monthly and this can add  up to a $100,000 extra at your disposal — depending on how long you live.

You don’t want to work – working is not “retirement.” However, maybe you enjoy cooking, woodshop or spending time with dogs.  There are more and more ways to make money from these types of hobbies.

If there is something you enjoy doing, you can probably figure out a way to get paid for it.

Explore 50 more passive income ideas!

The United States, especially certain parts, are extremely expensive places to live.  Retiring abroad can offer adventure and a dramatic reduction in cost structure for your retirement.

There are affordable places to live in all corners of the world – places where the climate might be a little warmer, where the cost of housing might be a little (or a lot) less expensive, and the healthcare might be more affordable.

But is it realistic to think you can afford to spend your retirement years living in some exotic locale? Not only is retiring abroad plausible, the number of retirees who have actually done this has more than doubled since 2006. And the kicker? They’re doing it for a lot less money than you might think, some as low as $40 per day!

Explore:

Once upon a time, long long ago…  we set a date and planned a big party for retirement. You went to work one day and then never again.

These days more and more of us have a different perspective on a retirement date.  Retirees today transition into retirement either by going part time for a few years or we find a retirement job.

Some retirees spend more in their lifetime on out of pocket healthcare costs than they earn in Social Security.  You can do a lot to cut those costs by staying healthy and by choosing Supplemental Medicare Coverage carefully.

Shopping around for the best supplemental Medicare plan should be done every year.  Plans change.  Your health needs change.

Here are 12 ways to save on retirement healthcare costs.

Creating a retirement plan might not seem like one of the most “creative” ways to retire.

However, only 30% of Americans have a long-term financial plan that includes savings and investment goals and a detailed outline for their retirement finances. So, if you have a plan, you are at least unique – if not creative!

And, the good news for planners? The retirees who went through a rigorous planning process to figure out “how to retire” expressed the most satisfaction with retirement.

The NewRetirement Retirement Planner makes it easy to create a detailed plan and discover ways to retire securely. Beyond these “creative” ideas – explore how delaying the start of Social Security or optimizing investments can give you a better future. Start by entering some basic information and get some initial feedback on where you stand.

Then you can add a lot more detail and really get an accurate estimate for how much you need.

Best of all, you can try an infinite number of scenarios. See how downsizing, a retirement job or reducing expenses will impact your finances.  Forbes Magazine calls this system “a new approach to retirement planning” and it was named a best retirement calculator by the American Association of Individual Investors (AAII) and CanIRetireYet.

Source: newretirement.com

Didn’t Save Enough for Retirement? 10 Tips for Making it Work

Senior couple signing mortgage paperwork
Monkey Business Images / Shutterstock.com

This story originally appeared on NewRetirement.

If you think you haven’t saved enough for a truly secure retirement, think again. The impossible could become possible with these creative ways to retire.

You see, saving diligently your entire life and then quitting work to play bridge is only one way to get to retirement. And, the odds are that it is not your way.

There are literally hundreds if not thousands of different levers that can be used to pull off financial independence in your 50s, 60s and beyond.

Following are several ways to retire even without adequate savings.

1. Take a mini-retirement or gap year

Happy senior woman
Darren Baker / Shutterstock.com

If you are emotionally or psychologically ready for retirement, but your finances are not quite there, you might explore taking a mini-retirement — an extended vacation (three to 12 months) from work.

Many people nearing retirement age find that an extended break from work is enough to recharge and re-energize. The trick is convincing your employer to let you have this precious time off.

It may be worth exploring your individual situation with a human resources manager to see if unpaid sabbatical leave or paid leave programs are available.

Quitting your job with the hopes of finding a similar job upon your return is another option. However, many people who take a retirement gap year actually discover an encore career and new passions during their mini-retirements.

If this idea interests you, learn more about taking a sabbatical, mini-retirement or gap year.

2. Prioritize what’s important and dramatically scale down expenses

happy senior couple eating breakfast
Rawpixel.com / Shutterstock.com

Living frugally is never going to be Easy Street, but it can be extremely rewarding to stay focused only on the things that are truly important to you.

Most financial advisers make the assumption that we need to maintain our lifelong spending habits when we retire. While this is true for most of us, many people redefine themselves in retirement and can dramatically reduce spending — one of the best ways to retire securely.

Retirement is an excellent time to take stock of what you have and what you want. If you know what is most important to you, you can set goals and figure out a way to achieve your highest priority.

A few tips:

Look carefully at your current spending: When you have established what is important to you, assess your current budget. Take a really detailed look at everything you spend money on — many people are surprised to learn how much little things that don’t really matter in the long run can add up to over the course of a month.

Create detailed projections: Use the NewRetirement Planner to create a detailed budget for your projected spending. When you get specific about your needs and how those will vary over time, you may find out that you are much better off than you thought.

Cut costs: Figure out how to slash both the big (eliminating your car can create sizeable savings) and small costs. Get rid of anything and everything not related to your top priorities.

Assess lifestyle: Take a look at where you live, who you spend time with, and what you do on a daily basis. If these aren’t in line with what is important to you, then make changes that can save you money and help you live a more meaningful life.

Remind yourself about what is important: Write down your retirement priorities and refer to them daily.

It may even be helpful to write a list every day about what you want to accomplish and why.

These simple tasks can help you stay on track.

3. Or, spend more! Just not every month

Seniors with money and paperwork
Syda Productions / Shutterstock.com

Huh?

Yes, you heard me right. You could perhaps spend more in retirement and still have a secure future.

You see, a lot of people plan retirement thinking that they will keep spending the same amount forever into the future as they do now. However, that is probably not what is going to happen.

You might need and want to spend more right after you stop working when you are relatively young and want to travel or engage in new hobbies. But, your spending will likely drop off as you get older.

Thinking through the details of your retirement spending — and giving yourself some leeway to spend more (maybe just a little bit more) in certain years and less (perhaps much less) at other times might just enable you to retire sooner than you had planned.

The NewRetirement Planner helps you think through detailed budgeting for your future, and you can vary your overall spending as well as your spending in individual categories to get to reasonable projections.

4. Think outside the box (rethink housing)

Senior couple at home
wavebreakmedia / Shutterstock.com

Many people don’t think much about their homes when creating a retirement plan. However, your home is probably your single greatest expense. Reducing this cost could be one of the best ways to retire securely.

Furthermore, if you own your home, then it is also probably your most valuable asset and one that could be used to help fund retirement expenses.

Rent out your home or a room in your home: House sharing is becoming more common, and Airbnb has exploded in popularity. Renting out a room in your existing home (or your whole home when traveling) — either on a permanent or short-term basis — can be a great way to help fund retirement because it uses an existing resource to generate money.

Downsize: If reducing housing costs and releasing your home equity interests you, downsizing may be a great option for you. When you downsize, you sell your existing home and buy or rent something less expensive. It can be a smaller home or a residence in another community. Learn more in this complete guide to downsizing.

Go teeny tiny: There is downsizing and then there are tiny homes. If you think that you could live in 500 square feet or less, then a tiny house could simplify your lifestyle and finances. Is a tiny house the big solution for your retirement plan?

Get a reverse mortgage: A reverse mortgage is a loan against your home equity. However, unlike traditional mortgages, you do not have to pay back the money borrowed as long as you are living in the home. If you want to stay in your existing home, a reverse mortgage is an interesting way to eliminate ongoing monthly mortgage payments and get access to cash to use for retirement expenses.

Hit the road: A few retirees sell most of their possessions — including the home — and hit the road. Could you imagine living in a motorhome or houseboat and traveling during retirement?

5. Pay attention to the big opportunities

Senior woman preparing for retirement
insta_photos / Shutterstock.com

Besides housing, taxes, debt and Social Security — especially Social Security — are probably the biggest levers you have for making retirement work with inadequate savings.

Debt: Imagine if you could spend the money you are currently using to pay down your debts every month! Being debt-free costs a bit upfront, but it is key to being financially free in the long run. Paying interest on debt is akin to lighting money on fire. Get rid of your debt as soon as possible.

Taxes: Being tax-smart with your retirement plans can mean more accurate projections and more money in your accounts. From where you live to income planning, there are many different ways you can reduce your tax burden.

Social Security: Waiting to start Social Security, up until age 70, can increase your monthly retirement benefit significantly.

6. Find work that feels like play

A bearded senior in a hat sings and plays piano music
DGLimages / Shutterstock.com

You don’t want to work — working is not “retirement.” However, maybe you enjoy cooking, wood shop or spending time with dogs. There are more and more ways to make money from these types of hobbies.

If there is something you enjoy doing, you can probably figure out a way to get paid for it.

7. Retire abroad

Happy retirees at home
Dragana Gordic / Shutterstock.com

The United States, especially certain parts, is an extremely expensive place to live. Retiring abroad can offer adventure and a dramatic reduction in cost structure for your retirement.

There are affordable places to live in all corners of the world — places where the climate might be a little warmer, where the cost of housing might be a little (or a lot) less expensive, and the health care might be more affordable.

But is it realistic to think you can afford to spend your retirement years living in some exotic locale? Not only is retiring abroad plausible, but you can also do it for a lot less money than you might think.

8. Don’t set a date — transition into retirement

A senior worker checking his laptop
StockLite / Shutterstock.com

Once upon a time, long long ago, we set a date and planned a big party for retirement. You went to work one day and then never again.

These days more and more of us have a different perspective on a retirement date. Retirees today transition into retirement either by going part-time for a few years, or we find a retirement job.

9. Stay healthy and make good insurance choices

Senior exercising in a park
Jacob Lund / Shutterstock.com

Some retirees spend more in their lifetime on out-of-pocket health care costs than they earn in Social Security. You can do a lot to cut those costs by staying healthy and by choosing supplemental Medicare coverage carefully.

Shopping around for the best supplemental Medicare plan should be done every year. Plans change. Your health needs change.

10. Have a detailed retirement plan and make smart retirement decisions

Senior couple studying retirement tax information online
goodluz / Shutterstock.com

Creating a retirement plan might not seem like one of the most “creative” ways to retire.

Few Americans have a long-term financial plan that includes savings and investment goals and a detailed outline for their retirement finances. So, if you have a plan, you are at least creative.

The NewRetirement Planner makes it easy to create a detailed plan and discover ways to retire securely. Beyond these “creative” ideas — explore how delaying the start of Social Security or optimizing investments can give you a better future. Start by entering some basic information and get some initial feedback on where you stand.

Then you can add a lot more detail and really get an accurate estimate of how much you need.

Best of all, you can try an infinite number of scenarios. See how downsizing, a retirement job, or reducing expenses will impact your finances.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

Best Reverse Mortgage Lenders for 2021

Reverse mortgage companies provide homeowners ages 62 and over with home equity conversion mortgages, or HECMs, that convert home equity into cash. The best reverse mortgage lender provides multiple options for tapping your home equity and solid educational resources focused on the lending process and reverse mortgage rates and costs. A counseling session is mandated for all homeowners who apply for a reverse mortgage, but you will still most likely have questions. A good lender is prepared to answer questions and serve as a guide through the entire process.

In this article

Today’s mortgage and refinance rates

According to Bankrate’s latest survey of the nation’s largest mortgage lenders, these are the current refinance average rates for a 30-year, 15-year fixed and 5/1 adjustable-rate mortgage (ARM) refinance rates among others.

Product Interest Rate APR
30-Year Fixed Rate 2.840% 3.140%
30-Year FHA Rate 2.680% 3.560%
30-Year VA Rate 2.780% 3.130%
30-Year Jumbo Rate 2.870% 2.980%
20-Year Fixed Rate 2.720% 3.040%
15-Year Fixed Rate 2.330% 2.650%
15-Year Fixed Jumbo Rate 2.340% 2.410%
5/1 ARM Rate 2.990% 4.000%
7/1 ARM Rate 2.880% 3.860%
7/1 ARM Jumbo Rate 2.950% 3.830%
10/1 ARM Rate 3.000% 3.910%

Rates data as of 2/3/2021

Best reverse mortgage lenders reviewed

Lender Sample Interest Rates Mortgage Types
Quontic Bank 4.195%–4.815% HECM
AAG 2.264%–6.168% Lump-sum payout
Growing line of credit
Jumbo loan
Term or tenure
Reverse for purchase
Longbridge 2.949%–4.333% HECM reverse mortgage
HECM for purchase reverse mortgage
Platinum mortgage
All Reverse Mortgage Inc 3.31%–6.99% HECM reverse mortgage
HECM for purchase
Jumbo loans
Proprietary loans
Finance of America Reverse Not listed HECM reverse mortgage
HECM for purchase
Jumbo loans
HomeSafe® Standard
HomeSafe® Select

*Rates accurate as of December 2020

Best reverse mortgage lenders reviewed

Quontic Bank – Best digital option

In recent years, Quontic Bank, formerly a regional bank in the northeast, has expanded its digital footprint and does business in all 50 states. Its reverse mortgage options are limited to HECM, meaning you must meet all of the standard requirements for the FHA’s program. As part of the process, Quontic will verify you have adequate assets to cover the necessary fees for the loan, including annual insurance payments, the money needed to maintain the home, and enough to cover property and other taxes. The bank provides easy access to loan officers who can answer the questions of remote customers via phone, e-mail or live chat.

AAG – Best recognized brand

AAG, or American Advisors Group, is the most recognized reverse mortgage lender due to its advertising efforts. The brand clearly explains the different types of reverse mortgages to potential borrowers and provides specialists to help you review the different loans options.

A lump-sum payout is an option that provides 60% of your potential funding in the first year. This is an option that is best used for major unexpected expenses. A line of credit could appeal to you if you have a need for more funds, like a new vehicle purchase or home improvements, and would prefer not to tap into your traditional retirement accounts to pay for it. Much like ORM, AAG also offers an in-house loan known as the jumbo reverse mortgage for properties outside the scope of FHA’s HECM program. The loan lets you tap up to $4 million in equity at a fixed rate. No mortgage insurance is required.

Longbridge – Best online tools

Longbridge Financial, LLC differentiates itself from competitors by offering easy-to-use tools, including a free quote calculator and scenario-based guides to answer the most common questions about reverse mortgages, such as, “What happens when the homeowner can no longer live in the home or dies?” The answer is that the loan must be repaid. In many cases, the home is sold. If it sells for less than the amount owed on the reverse mortgage, the FHA insurance covers the difference, not the heirs. If it sells for more, the lender is paid back, and the estate receives the remainder.

Longbridge also provides a loan option for homes with a higher value along with the common HECM for purchase loan. With a for-purchase loan, you buy a new home with a down payment up to 50% of its purchase price and pay for closing. The HECM covers the balance and provides any remaining funds to you. Going forward, you do not have to make monthly mortgage payments. Many homeowners who choose the option want to relocate to a different climate, move closer to children and other family members or need a home that meets new needs by providing accessibility options and other amenities.

All Reverse Mortgage Inc – Best customer reviews

All Reverse Mortgage Inc — also called ARLO — offers a variety of reverse mortgages including HECM’s, jumbo reverse, HECM purchase, proprietary reverse, HomeSafe reverse, Platinum reverse, and more. Using the ARLO calculator on its website, you can get information quickly and easily on what reverse mortgage you may qualify for. If you meet the requirements of a reverse mortgage, you can apply over the phone or online. It can take 30 or more days to close a reverse mortgage with All Reverse Mortgage, which is pretty standard in the industry.

Depending on factors like age, current rates and type of reverse mortgage loan you can expect to receive anywhere from 40% to 60% of your home value. You may choose a line of credit with an adjustable-rate, a HECM (traditional or jumbo), a reverse mortgage for purchase if you’re buying a new home, and if your property exceeds FHA limits, ARLO offers a proprietary reverse mortgage option.

Finance of America Reverse – Best private option

Also in business for 16 years, Finance of America Reverse’s website is user-friendly and thorough, offering loan options to accommodate various life goals you may have. You can then easily review each loan option, including detailed brochures. For example, if you want to unlock the potential in your home’s equity the HECM mortgage option may be for you. This may allow you to achieve goals like paying off your existing mortgage, pay for in-home care, renovate, supplement income, cover medical expenses, stay in the home long-term, and more.

If you are looking for a new home whether to upsize, downsize, or just relocate, the Reverse for Purchase option is available. Finance of America Reverse also offers a HomeSafe option that includes a standard and jumbo reverse mortgage. If you are looking to increase cash flow or leverage your current equity to buy a new home, one of these options may be right for you.

Lender Sample Interest Rates Mortgage Types
Quontic Bank 4.199%–4.815% HECM
AAG 2.264%–6.168% Lump-sum payout
Growing line of credit
Jumbo loan
Term or tenure
Reverse for purchase
Longbridge 2.949%–4.333% HECM reverse mortgage
HECM for purchase reverse mortgage
Platinum mortgage
All Reverse Mortgage Inc 3.39%–6.99% HECM reverse mortgage
HECM for purchase
Jumbo loans
Proprietary loans
Finance of America Reverse Not listed HECM reverse mortgage
HECM for purchase
Jumbo loans
HomeSafe® Standard
HomeSafe® Select

Reverse Mortgage Buying Guide

What is a reverse mortgage?

A reverse mortgage is a loan that allows you to cash in on the equity built up in a home. These loans are primarily for homeowners over the age of 62. Instead of monthly payments due to the lender, the loaned amount is owed in a lump sum paid when the homeowner passes, sells the home or moves away permanently. There are strict regulations involved with reverse mortgages that prevent the amount owed from being larger than the value of the home when sold by the homeowner or their estate after passing.

How reverse mortgages work

Let’s say you are a homeowner over the age of 62 and your monthly Social Security payments aren’t enough to pay the bills, or you want to help pay for a grandchild’s college. Similar to a home equity loan, a reverse mortgage will cash out the equity built up in the home in one lump sum. Unlike a home equity loan, however, you don’t make monthly payments to repay the loan. The loan is repaid when the house is sold, you pass away or move permanently away from the house, like to an assisted living facility.

Let’s say you have a $150,000 mortgage that you’ve paid off down to $40,000. Assuming that the house’s value is also $150,000, you can access up to the remaining $110,000 in a reverse mortgage loan. No monthly payments need to be made to repay the reverse mortgage loan, but interest is charged on the borrowed amount over the life of the loan. Then, let’s say you sell the home to move to an assisted living center or move in with family members, that’s when the loan payment is due.

If the house went up in value and you sold it for $160,000, part of the sale must go toward paying off the remainder of your original mortgage as well as the money you borrowed in your reverse mortgage. If the house went down in value, there are federal regulations in place to protect the borrower from owing more than the house’s worth in a sale.

Reverse mortgage vs. home equity loan

A reverse mortgage and home equity loan are two very similar home lending products. Both require homeownership and equity built up in the home to borrow. However, while home equity loans require monthly payments immediately after funds are dispersed, reverse mortgages do not have monthly payments attached to the terms. Instead, the funds borrowed in a reverse mortgage are due for repayment when the home is sold or the owner passes away, in which case the estate will be responsible for paying back the loan.

Types of reverse mortgages

Just as there are multiple types of mortgage loans at the beginning of the homeownership journey, there are different types of reverse mortgage available to homeowners.

  1. Lump sum: the funds from the loan are available all at once and charged a fixed interest rate.
  2. Annuity/equal payments: when the reverse mortgage is agreed upon, the lender will send the funds to the borrower in equal monthly payments.
  3. Term payments: the funds are sent to the borrower in equal monthly payments over a certain period of time, such as 10 or 15 years.
  4. Line of credit: similar to a home equity line of credit, the funds from the reverse mortgage are available to the borrower to draw upon as needed, and only what is borrowed will be charged interest and need paid back.
  5. Term and line of credit: this is a hybrid between term payments and line of credit. Monthly payments are made to the borrower over a set term (such as 10 or 15 years), but more funds are available to draw upon if needed.
  6. Equal payments and line of credit: similar to term payments and line of credit, equal monthly payments based on how much is borrowed are made to the borrower, plus additional funds available to draw upon if needed.

How to choose the best reverse mortgage for you

Because there are many different types of reverse mortgages and even more types of borrower financial situations, it can be difficult to determine which is the best reverse mortgage for you. However, simply addressing your needs, what you want from a reverse mortgage and how you expect your financial status to change.

  1. Determine if a reverse mortgage is the right financial decision to begin with. You should expect to live in the house for another 10 to 15 years to reap the full benefits of the financial transaction. Furthermore, you should have a considerable amount of equity built up in the house.
  2. Determine which type of reverse mortgage you need. If you’re using the funds to supplement Social Security payments, then a term or annuity payments may be the best bet. On the other hand, if you’re using the funds to help a family member with a down payment on a house or to pay for college education, a lump sum reverse mortgage is a better option.
  3. Find and do research on reverse mortgage lenders. Although we’ve covered a few of the top picks in reverse mortgage lending, there are some illegitimate lenders out there that only want to take advantage of older homeowners who do not know any better.
  4. Pick a reverse mortgage lender that offers reasonable interest rates and provides the type of reverse mortgage that you need. The lender should help you in every step of the way, from home appraisal to closing on the loan. If the lender doesn’t offer this type of assistance to borrowers, it may not be worth it to do business with them.

Reverse mortgage FAQS

In short, no. Because it’s still a loan and not a sale or income wages, the IRS does not tax the monthly payments from a reverse mortgage.

Generally, borrowers will have to pay fees upfront for a reverse mortgage. These are typically origination fees, insurance premiums, mortgage insurance and lending fees. However, the government does limit how much lenders can charge borrowers in a reverse mortgage.

Unfortunately for the lender, that’s part of the risk of lending — generally, lenders believe that the house will increase in value, making it possible for the borrower to pay back the loan. However, federal regulations dictate that in a reverse mortgage, the estate or borrower is not responsible for the difference between the sale of the house and the loan; the lender must absorb that loss.

We welcome your feedback on this article and would love to hear about your experience with the reverse mortgage lenders we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com