How Reverse Mortgages Protect Women’s Retirement from Major Life Events

Due to the fact that women live longer than men and that women still are only making 79 cents for every dollar men make, they have a more difficult time achieving retirement security. Even with statistics not in their favor, women do still have options when it comes to financially securing themselves as they age.

The first step is to get a financial plan together as early as possible, Jocelyn Wright, director of The American College State Farm Center for Women and Financial Services and assistant professor of women’s studies, said in a recent webinar hosted by the American Society on Aging and sponsored by the National Reverse Mortgage Lenders Association (NRMLA).

And part of that financial plan could include a reverse mortgage, Wright points out.

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There are major life events that a large portion of older women go through, which include divorce and becoming a widow. These two life events are tough enough to get through, but they also can derail retirement savings.

One way women can get through these life events and other events similar to them is by tapping into their home equity through a reverse mortgage, Lorraine Geraci, vice president of the training division at Finance of America Reverse (FAR), explained during the webinar.

“I feel it’s imperative that we collectively provide choices to assist older adult women by sustaining financial longevity and establishing peace of mind,” Geraci said.

Obtaining a reverse mortgage will not play out the same for each woman nor will each woman use a reverse mortgage in the same way.

There are many different strategies when it comes to figuring out how to use a reverse mortgage to its fullest potential. The first step is to choose between a fixed rate and an adjustable rate home equity conversion mortgage (HECM), Geraci shared.

“An adjustable rate HECM is similar to a home equity loan line of credit except that amount of line of credit is accessible to them whenever they want and also grows while it’s in the credit line, which can increase the amount of equity available to the borrower as times goes on,” she said.

Once the borrower has chosen either a fixed rate or adjustable rate HECM, setting a strategy should be addressed next. A strategy could be anything from using the proceeds to manage long-term care payments, social security planning, income planning or to purchase a new home altogether.

“There’s a lot of folks in the baby boomer generation who would like to move to a different location and with the HECM for purchase program, they can have that option,” Geraci said.

These strategies, if implemented correctly, can change the financial situation for women who do not have an adequate amount of retirement savings and can also help them age in place.

Written by Alana Stramowski

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  • Lorraine declares: “… the credit line … can increase the amount of equity available to the borrower as times goes on….”

    This is nonsense.

    What happens if 20 years out, the value of the home exceeds the total debts of the property by just $10,000 but the available line of credit is $40,000. So based on Lorraine’s statement, the borrower cannot take more than $10,000 out of the line of credit because at that point the line of credit will be zero with $30,000 in the line of credit still showing as available.

    In truth, home equity has absolutely nothing to do with the line of credit other than at closing in helping us determine how much remains available to the borrower after financing upfront costs and paying off the existing debts which are collateralized by the home. The line of credit and its growth and how much is available to the borrower at any point in time, is based solely on the mortgage documents.

    Home equity is not stable, it is not static, but it is dynamic and complex since it is determined by two independent factors. So, for example, even though the amount of debt against the property can easily be determined by a borrower, it is highly unlikely if the borrower knows the appraised value of the property. Unless the borrower has both the current value of the home and the current total of all debt balances against the home, where can obtain the borrower determine the amount of home equity? Home equity is dependent on the value of the home and the total of the balance due on debt collaterized by the home.

  • The only error she made is “which can increase the amount of equity available”, The line of credit is established at closing of the reverse and the value of the home is then used to determine the line of credit made available. The line will grow or appreciate at the same rate that the mortgage is accruing interest. Essentially, use the line as wanted or needed as the used portion will then be applied to the mortgage, decreasing the equity of the home at sale or refinance when the home is no longer the primary residence. If the home value is more than the
    mortgage at time of sale then monies or equity is realized. If the home value is less than the mortgage amount against it, then non-recourse kicks in. The estate heirs will never owe more than what the home is worth at the time of sale even if the mortgage exceeds the home value. As to the line, use it, or loose it, if market depicts decreased value, than at time of the reverse closing, and monies in line are still available.

    • Hey Robin D. Faison,

      That is an odd username. I have never seen someone have a user name different than their own but yours is unusual because you add a picture.

      The HECM line of credit increases not by just the interest rate but rather it increases monthly by the average daily available line of credit that month times one-twelfth of the sum of the rate of note interest and the rate for ongoing MIP. For example, if the annual note interest rate for the month on an adjustable rate HECM closed on 12/5/2015 was 4.75%, then the growth rate on the HECM line of credit would be 0.5%.

      You state: ” If the home value is less than the mortgage amount against it, then non-recourse kicks in.” But that is nonsense. The only time that the nonrecourse rule comes into play is at termination. For example, if home value was $400,000 but the HECM balance due was $450,000 on 12/1/2016 (the peak point of negative home equity) but the HECM has not terminated, home equity would be a negative $50,000. On HECM termination in 2020, let us say the home value was $600,000 due to unprecedented home appreciation while the HECM balance due was $525,000, most of us would agree that home equity was 75,000 before selling costs. Yet your statement would lead one to the conclusion that home equity was at least $125,000. The reason is that you stated that when “…home value is less the mortgage amount, then nonrecourse kicks in.” That means home equity was zero on 12/1/2016 and now the $50,000 increase in home equity on that date and be added to the gain on termination; otherwise nonrecourse did not come into play on 12/1/2016 as you claim it would.

      It is important that we as originators state facts correctly.

      • I like disqus_0ZkCHEI6v. Have no clue how this happened. Not afraid to post my name this is just how it came out. I have better things to do now. Bye.

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