Last month, our president Nathan Guerrero had the opportunity to be on Let’s Chatt and talk more about the reverse mortgage industry. Watch our interviews to find out more about our clients, the common misconceptions from clients, and how clients use the reverse mortgage loan to benefit their lives.

Watch the episodes here:

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April is Financial Literacy Month. Why is this important? Financial literacy is key to understanding how to save, earn, borrow, invest, and protect your money wisely. It is also essential to developing short- and long-term financial habits and skills that lead to greater financial well-being. Simply put, financial literacy is not just about the money you are spending, it is about the smart choices you are making every day and having a planning-forward focus. 

• The most important part of Financial Literacy is having a plan. It can be overwhelming to learn all the “financial jargon” when it comes to managing your money. The most important part is to make a plan about your finances. Look at expenses that will continue after retirement and what will be reduced after retirement. 

• Track what you spend and how it makes you feel, so you can decide what’s worth it to you and what’s not. Shift your spending toward what makes you truly happy – slaying debt, savoring a treat, helping a friend, or investing in an experience.

• Focus on what you can control. Unfortunately, there are a lot of things that are out of your control when it comes to money. For example, you cannot control how the markets perform, a pandemic, or even how long recessions last. However, there are things you can control. For example, you can control things such as the amount of your monthly contributions, your spending habits, the investment and account management fees you are paying, and even the type(s) of insurance you have in place to protect your family and your financial security.

• Start with small, manageable changes and celebrate milestones along your journey! When considering how your money can help you meet your physical, social, and emotional needs, break goals into bite-sized pieces which are easier to form into habits. 

• Consider using your home equity. At Mortgage South, we are committed to helping you find the best solution for your financial needs. When it comes to making decisions about your retirement goals and objectives, we want to show you how you can make the equity in your home work for your retirement needs.

We are introducing a new slogan to Mortgage South- Local. Trusted. Committed. In this blog post, we wanted to show the meaning behind this new slogan and why it means so much to our company.

Local- In 1993, we completed the first reverse mortgage in the state of Tennessee. Over the years, we have helped nearly 2,000 homeowners like you put the equity in their homes to work for them. We now offer reverse mortgages in Georgia and Tennessee. Nathan Guerrero is our reverse mortgage specialist and President. As a native of the North Georgia and the Chattanooga area, he’s been helping homeowners with reverse mortgages since 2005. “Nathan Guerrero is the best. I began my journey with a company in California. I became uncomfortable and began looking locally and Nathan came highly recommended. I was not disappointed. He was able to provide me a lower interest rate than the one promised from California as well as a lower origination fee. He also has not disappeared from the scene after the closing. He has made himself available to answer any questions or deal with any problems that might arise. I am completely satisfied.” -Pam Humphrey

Trusted- Seniors throughout Chattanooga and North Georgia know that Nathan is a honest, straightforward expert in his industry. He originated loans with some of the largest lenders in the industry, and his experience has given him a wealth of knowledge and resources. “Nathan is a trustworthy, knowledgeable professional who will give you solid advice and guide you in the right direction when using this form of mortgage. Please call him and let him rid you of the misunderstandings of this industry. Again trust him for advice for your parents and using the equity in your home!!!!” -Emma Carpenter

Committed- We are committed to excellence and making sure we are by your side every step of the way in the Reverse Mortgage Process. Our most important purpose is to build long-lasting relationships with our clients to ensure happiness and security in your financial and personal future.

We are also committed to the industry. As other lenders have transitioned in and out of the reverse mortgage industry, Mortgage South has stayed steadfast and committed to our community and clientele.

“A little research led me to Nathan and Mortgage South. Nathan got me locked into a much lower guaranteed interest rate and lower origination fees. I have a Masters Degree in Engineering and really crunch the numbers when faced with something as important as a reverse mortgage. Nathan was very patient and fed my thirst for data, analysis and answered endless questions. We found a way for me to save significant taxes and lower my borrowing cost. Nathan was always available by phone often working late at night from home. He is very professional, knowledgeable and most importantly very honest and trustworthy. I can not say the same about the big national NY and CA companies. Call Nathan at Mortgage South for personal and professional service.” Larry Parker

Here are some ways older Americans are putting their reverse mortgages to work:

1. Pay Off Current Mortgage

Your reverse mortgage pays off your existing mortgage which is a requirement of the loan. Although this powerful feature means you no longer have any monthly mortgage payments, you are still responsible for maintaining your home and paying property taxes and homeowners insurance, as you would with any home mortgage.

   2. Create more monthly cash flow

The absence of monthly mortgage payments should free up more spendable cash for you each month. If you don’t have an existing mortgage that first needs to be paid off, you should have even more cash, which you can choose to receive via a variety of disbursement plans, including a line of credit as a buffer against financial emergencies.

   3. Pay off high-interest debt

Replacing high-interest debt with lower-interest debt is simply smart money management, especially if you’ve been carrying a balance forward each month, incurring double-digit interest rates.

   4. Make home improvements

Fixing up your home to make it safer and more comfortable is a great aging-in-place strategy that allows you to continue living in the home you love. You must continue to maintain your property and regularly pay your property taxes and homeowners insurance. 

   5. Buy another home

Instead of fixing up your current home, sell it and use a reverse mortgage to buy another one, better suited to your current and future needs. Typically, homebuyers use some or all of the  proceeds from the sale of their home, or personal savings for their down payment. They  combine these funds with a reverse mortgage to complete the purchase.

   6. Pay medical expenses now and in the future

Many reverse mortgage borrowers use a reverse mortgage line of credit as a sort of long-term care health insurance policy. Any portion of the reverse mortgage line of credit  that you don’t use will continue to increase, giving you a growing, go-to source of funds to help you pay for medical emergencies or your at home long-term care needs.

   7. Preserve your investment portfolio

Having a reverse mortgage gives you more flexibility to manage your investments. Use funds from a reverse mortgage to keep from selling investments that are performing well or others that haven’t performed well, but that you expect to recover. Some borrowers also incorporate a reverse mortgage as a way to defend their portfolios against a sequence of returns risk, which can occur when retirees early in their retirement begin drawing down their main investment accounts at the same time the stock market is declining. By drawing from a reverse mortgage instead, they may largely offset this downside risk.

    8. Delay Taking Social Security

Use a reverse mortgage to bridge your need for retirement income until your Social Security payments begin. For every year that you can delay taking Social Security from 62 to 70, you can get as much as 8% more. 

    9. Continue your legacy

Help out your children or grandchildren financially — help with their down payment on a new home or help with their student loans, giving them a better chance to secure a strong financial foundation for the future.

     10. Fund Your Retirement Lifestyle

No matter how you use the money from your home equity, you can fund the retirement lifestyle that best fits you and your family’s needs.

Many older adults want to “age in place” – stay in their own homes as they get older. Studies have shown that 90 percent of adults over the age of 65 would prefer to stay in their current homes as they age. This is now even more true during a pandemic. Many studies have found that feelings of loneliness are strongly correlated to a variety of health issues including an increased risk for cancer, depression, dementia, and cardiovascular issues. Because of COVID-19, we may see health issues or even premature deaths among vulnerable senior populations who have been quarantined while living alone. 

There are also many benefits to aging in place. First, you can maintain your independence. By aging in place, seniors can maintain personal independence. They are able to live their lives as they see fit, and they enjoy a sense of sensibility unavailable to many elderly adults. 

Second, a person’s home is the most important place in their life. A home offers a sense of familiarity, comfort, and security. For many seniors, the emotional value of home is far more important than its monetary value. They want a space that doesn’t simply act as a home, but actually feels like one. Aging in place allows older adults to stay in a familiar and cherished space. This is a critical and underrated factor in seniors’ quality of life. Aging in place also tends to improve seniors’ quality of life, which improves their physical health. It also insulates them from the bacterial and viral risks found in senior living facilities, reducing their chance of contracting a serious illness.

A few changes could make your home easier and safer to live in and help you continue to live independently. These renovations may seem like a daunting, pricey task; however, in the last blog post we mentioned a reverse mortgage provides an additional stream of income for seniors.  A reverse mortgage may provide the funds for the needed or desired renovations that would allow you to maximize your quality of life for years to come as you age in place. “In the first months of the pandemic, reverse mortgages likely looked like a good way for retirees to tackle their expenses when other investments were cratering,” writes FA columnist Eric Rasmussen. Here are a few changes you could make to your current home so it is more “Age in Place” friendly: 

• No-step entry ways
• No-step thresholds 
• Garage Lift
• Building a roll-in shower with multiple shower heads (height adjustable handheld shower head and fixed)
• Lowering the bathroom sink and making sure there’s proper knee clearance
• Installing an elevated toilet
• Installing grab bars
• Ensuring there’s ample maneuvering clearance
• Building a walk-in closet with storage at differing heights
• Installing rocker light switches that are easier to turn on compared to a more common flip switch
• Lowering cooking surfaces
• Mounting a wall oven or microwave at reachable heights
• Making sure there’s an abundance of storage space within reach
• Providing a desk/work area with knee clearance

After years of paying down your mortgage, the bulk of your wealth now rests in one main asset: your home. Now, think of your home like a savings account- you have a lot of cash built up in your home from paying your mortgage over time, and depreciation has made it grow even more- this is your home equity. The older you become and the longer you’ve been in the home, the more money that has been invested into the home. Now, you want to take out some of that money to help towards retirement expenses. The traditional ways to tap into your home equity are a home equity line of credit, or a cash-out refinance. For seniors, a really great solution would be a hybrid of the two- a reverse mortgage.

A reverse mortgage is one way to tap into that home equity. It allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills. A reverse mortgage provides an additional income stream for seniors.

A reverse mortgage is unique because of the different options available to you. Some borrowers use the reverse mortgage line of credit as an additional safety net. Others choose to pull out a lump sum to pay off debt that is causing them a monthly cash flow crunch. Others choose to create a monthly income stream for life, and others refinance their existing mortgage into a reverse mortgage. This will benefit the borrower because now they have no monthly mortgage payment. So, the money they were spending each month on a mortgage payment. Is now theirs to spend on living life to its fullest. Using one of these options or a combination of all of them can be a strategic financial retirement tool.

Many of our clients are tapping into your home equity to provide themselves with extra money to maintain their lifestyles during retirement. Two big factors that make now the best time to tap into your home equity. 1. Interests rates are at an all-time low. This means that we can open up more of your home equity to you. 2. Housing values are at historical highs. The higher your home’s value. The more we are able to lend. If using home equity as part of your financial plan is for you? Give me a ring and lets chat.

A home is an investment that comes with many investment benefits. The house you live in can certainly be a wealth-building tool, but it’s important to have realistic expectations about how it might perform as an investment. If you stay in your home long enough, there’s a very good likelihood you will be able to sell your home for a profit because of appreciation later in the future. In fact, buying a home is one of the best long-term investments you can make.

One major benefit that comes with buying a home is that it can be a type of “forced savings” because, by making monthly payments on a mortgage, you’re using money in a constructive way by putting into an asset that you could later sell. Wealth manager and American Financial Author David Bach says that “buying a home is the escalator to wealth in America,” and it can even help you retire early if you pay off your mortgage. 

The average American has roughly twice as much value in home equity* as they have in their retirement savings. Now that we have made the case for a home not only being a place to live life, but also a large final investment. We believe that it is only natural to explore ways to possibly use this key investment as part of a larger fanatical strategy.   (My next blog post will be when or how to tap into your home equity.) 

*What is home equity? Home equity is the difference in the market value of your home and how much you owe. Many investors follow their home equity and home market value simultaneously.

Overall, buying a home is a great investment to save for retirement and possible help fund your retirement. If you haven’t invested in a home or not sure you made the most of your investment- it’s not too late! There are many ways to increase your existing income. Check out my Reverse Mortgage or HELOC blog- https://www.mortgage-south.com/blog/ – to see two of the options you have when it comes to stretching your existing income and investing in your home.

Nathan Guerrero of Mortgage South was featured by the Times Free Press in their online EDGE magazine recently, to discuss his work with reverse mortgages and as the head of the Chattanooga chapter of the Mortgage Banker’s Association. For more details, we welcome you to read the article on the Times Free Press Website.

In my previous post, I outlined the inner workings of a traditional Home Equity Line of Credit (HELOC). Today, I’d like to share with you how a Home Equity Conversion Mortgage (HECM) works. HECMs are also commonly known as “Reverse Mortgages.” We’ll discuss:

• Closing costs
• Lending limits
• Payment triggers
• Pros & cons of HELOCs and HECMs

HELOC or Reverse Mortgage? Pt. 2: Reverse Mortgage Features

HECMs are specifically designed for borrowers age 62 or older and have a litany of beneficial features. They differ from HELOCs in a few key areas. Let’s explore.

1. Closing Costs

The total closing cost of a Reverse Mortgage is higher than some other home financing options. This is because of two primary factors.

The first factor is that the loan is insured by the Federal Housing Authority (FHA). FHA insures the loan so that the home stands 100% good for the loan. This insurance protects both you and your estate in case the HECM balance ever exceeds the property value. Even though this insurance is mandated by FHA and comes at a cost to the borrower, it may prove to be invaluable.

The second factor is the origination cost. This is a cost that the lender charges in order to pay for its day-to-day operation. The rest of the cost consists of typical charges in a real estate transaction, such as appraisal and title fees.

2. Lending Limits

Now let’s take a look at how lending limits are determined for a HECM. FHA provides a formula based on three primary factors.

• The age of the youngest borrower
• The appraised value of the property
• The current interest rate

The older the borrower, the more loan value is available to them. So, a 72-year-old can expect to receive more than a 62-year-old. Now remember, the entire amount is guaranteed by FHA to always be available.

Here’s an example: let’s assume that we have another housing crisis similar to what we experienced in 2008. The line of credit that a borrower has available to them through a HECM loan cannot be suspended – for any reason. Access to these funds is guaranteed by FHA. On the other hand, as you will remember from my previous post, the same could not be said for a borrower who had a traditional home equity line of credit during a drastic downturn in the real estate market. Their account could be frozen.

3. Payment Triggers

Now, let’s look at what triggers payment for a HECM. The HECM loan is unique in the fact that all mortgage payments are deferred while the borrower is living in the home as their primary residence. So, when the last surviving borrower passes away, sells the home, or goes to a long-term care facility, the loan comes due.

The family or the borrower have certain options at that time. The first option is to sell the home. Any money that remains after paying off the HECM will go to the borrower. If the borrower is deceased, the estate would receive any proceeds remaining after the HECM has been fully paid. The borrower or the estate would have up to one year to sell the home once it has been vacated. There is no deadline to sell the home as long as the borrower is living in the home while they are in the process of selling it.

The second option for the estate is to keep the property. In this scenario, the borrower is only required to pay off what is owed at the time the loan comes due. They are then free to manage the property in any way they would like.

The final option for the estate is to deed the property over to the lender in lieu of payment. This usually would happen if the real estate market has taken a downturn at the time the loan comes due. The family has the assurance that they can use the property to pay off the loan with zero liability. This goes back to the benefit of the loan being insured by FHA. If the borrower gets to the point that they need to permanently vacate the property, they can also return the property to the lender with zero liability to their personal assets or savings. Contrast this with a traditional line of credit that typically has an interest-only payment due for the first 5 to 10 years of the contract and then must be renewed or paid off.

This last option can obviously be of substantial benefit to a retired individual. No monthly mortgage during a time of fixed income says a lot. However, the fact that the Reverse Mortgage will never require renewal while the borrower keeps the home as a primary residence can be an equally attractive benefit.

Reverse Mortgage& HELOC Pros & Cons

Let’s take a final look at a list of pros and cons of the Reverse Mortgage and the pros and cons of the traditional Home Equity Line of Credit.

HELOC Pros

1. Low closing cost
2. More money can be borrowed based on the home’s value

HELOC Cons

1. The loan will need to be renewed or paid in full in 5 or 10 years
2. Monthly mortgage payment goes up when rates go up or after renewal date
3. The bank can stop access to loan proceeds with little notice in a market downturn

Reverse Mortgage Pros

1. The loan will never need to be renewed
2. There is no monthly mortgage payment while the borrower remains in the home
3. Access to the loan proceeds can never be denied for any reason – guaranteed by FHA

Reverse Mortgage Cons

1. Higher closing costs
2. Less money can be lent initially
3. The home’s equity will diminish over time because of no required monthly mortgage payment

We’re Here to Help

In closing, I sincerely hope that I have provided some valuable insight into the differences, pros and cons of both the traditional Home Equity Line of Credit and the Reverse Mortgage line of credit. I also hope it helps a potential borrower or their loved ones make the right decision when using home equity as a part of a retirement strategy. In full disclosure, my company only offers the Reverse Mortgage loan. However, we firmly believe in its value to our community.

We have over 2,000 clients with unique stories, and we have been a part of a solution for all of them. We feel strongly about the Reverse Mortgage option because it was designed and insured by FHA specifically for retired individuals. Please feel free to contact me any time for a consultation.