We all know where the market has been going in the last couple of months. Financial advisors have had their challenge managing client portfolios, but more so managing their clients’ psychological risk make up, panic and expectations for the future. We’ve been through this before, but it still doesn’t bring on a super cozy comfy feeling because the question really becomes: when is the market recovering?

If the market goes down 40%, you have to wait for the market to come up about 66.7% to be even. And there’s no guarantee that what you own will appreciate. I remember way back in 2000 when the market was tanking. I had a bunch of Microsoft: I panicked and sold. Although I made some money with Microsoft, I would’ve made much more if I held on to it. (These are the famous words spoken in steam rooms by investors worldwide.) It’s easy for me to say now, but it took a long time for that stock to really shoot up. The market was moving up after the elections, but, as you may know, dropped pretty quickly as soon as President Trump put his tariff strategy into place.

Waiting it out, if you don’t need to sell, may prevent you from paying any kind of capital gains or taking any kind of losses. The luxury of waiting depends on two options: (1) Having savings in which taxes were already paid, so you can draw on those accounts, or (2) Taking advantage of the equity on your home. You could take a regular mortgage, or equity line and cash out, or you could take a reverse mortgage.

Let me tell you about one of the greatest mortgage financing tools we have in this country today. Today’s reverse mortgage has a variety of options, lower costs and additional consumer protections in place to provide you and your family with more confidence for your retirement security and cushion.

HECM (home equity conversion mortgage) reverse mortgages offer a line of credit that you can tap into when you need it. The unused portion of your line of credit actually grows every month! You have the option to convert, at any time, to annuity-style monthly payments for a period of time or for the rest of your life, or you can just build-in additional security and use it as a rainy-day account. Immediate cash flow can be created by paying off an existing mortgage loan. A reverse mortgage is now a versatile, safe and effective retirement planning tool to meet a variety of needs.

A reverse mortgage allows borrowers to purchase a property or unlock the equity in their home by turning it into tax-free cash (consult with your tax advisor) without having to make any monthly mortgage payments. (real estate taxes and insurance must still be paid). How do you qualify?

1. The borrower on title must be 62, or 55 years or older (a non-borrowing spouse may be under age 62)
2. The home must be the borrower’s primary residence
3. The borrower must purchase or own and live in the home as a primary residence
4. Borrowers must continue paying property taxes and homeowners insurance, maintain the home and otherwise comply with the loan terms.

Reverse Mortgage Advantages

1. On home purchases, you preserve cash instead of paying all cash.
2. You eliminate a monthly mortgage payment on new loans as well as existing loans.
3. You can preserve your stock portfolio instead of selling investments to access cash which drains your account and may cost you capital gains taxes.
4. You can structure the reverse mortgage so that you use a portion to close and leave an untapped credit line portion so that you take advantage of line growth (there is a growth factor on a reverse mortgage. Any unused portion of the line grows and if you allow that, over the years you have more tax-free money available when needed.)
5. You can start or buy a business and fund the purchase with the reverse mortgage funds, and pay the loan back when profitable. I had a wealthy client who called me about taking a reverse mortgage. He wanted to use it as a bridge loan and eliminate his existing high mortgage payments until his private equity investments paid off.
6. A reverse mortgage can be used for planning the following:
7. a) Provide funding for healthcare or medical treatment.Within one’s budget, there is a need for long-term care planning to both protect one’s assets and remove any potential burden on the family. Many seniors may be forced to use their savings and/or their monthly income for long-term care coverage. A reverse mortgage allows seniors to stay in their homes, be self-sufficient and not deplete all their savings.
8. b) Funding for estate taxes: If a reverse mortgage line is tapped to fund life insurance, the total estate value subject to taxes is lowered by providing life insurance proceeds for the homeowner’s heirs to pay estate taxes.

Generally, the full value of a home is subject to estate tax, but a reverse mortgage lien reduces its value, thereby lowering estate tax. (Consult your tax estate specialist.) At death, the full value of the property would not be included in estate valuation for tax purposes. The accumulated debt of the reverse mortgage would effectively reduce the property value and may lower any applicable estate taxation. In addition, accrued interest in the reverse mortgage may be available as a tax reduction upon repayment of the loan.

Don’t Let Misconceptions Become Missed Opportunities

Misconception: Reverse mortgages are a scam that sounds too good to be true.

Truth:Reverse mortgages are highly regulated products with strict government requirements that safeguard borrowers. This includes required counseling sessions that ensure the borrowers understand the loan they are getting and their obligations. The most common reverse mortgage loan, the home equity conversion mortgage, is insured by the Federal Housing Administration (FHA), and all reverse mortgages, including proprietary products, are non-recourse. This ensures that a borrower and/or heirs will never have to pay back the lender more than the home’s value, even if the final debt is greater than what the home is worth.

Misconception: Reverse mortgages are only for desperate people and getting one is a bad step to take.

Truth: A reverse mortgage can be an excellent financial tool for homeowners in or near retirement age. While it’s true that some use a reverse to save their homes and make ends meet, others use it strategically to diversify investments, buy a new property, and fund their dreams. In fact, many financial planners advise clients to explore their home equity options when planning for retirement, including using a reverse mortgage to unlock cash while remaining in the home they love.

Misconception: The bank owns (or wants to own) the home.

Truth: Reverse mortgage borrowers continue to own their home and retain title throughout the life of the loan, so long as they adhere to the loan terms. After all the borrowers pass away, their heirs can repay the loan balance and keep the home. They can also sell the home and repay the full loan or, if the balance owed exceeds the home value in the case of a FHA insured loan, at least 95% of the appraised value. Lenders do not want to take possession of the home and only do so when the loan terms are broken and the balance due cannot otherwise be repaid.

Preservation of savings becomes key as we get older. Everybody has different needs and different risk reward thresholds. I’m not going to go into asset allocation, but I will suggest that if a person is in their 60s or older and they want to eliminate some risk from their portfolio or roll over some monies from their qualified pension plans, annuities may be an alternative.

When carefully structured, annuities can provide upside risk, while eliminating downside risk (though the former is not guaranteed). Additional riders can be added, such as income riders and long-term care riders, which can be a great workaround from getting a standalone long-term care policy.

Important Consumer Safeguards

There is no prepayment penalty. Although the loan is not due and payable until the last homeowner leaves the home, you can choose to repay the loan at any time without incurring additional costs.

HUD Fee Limitations

HECM loan origination fees are regulated by HUD. Other reverse mortgage costs may vary among creditors and loan types.

Non-recourse loan HECMs, as the name implies, are considered non-recourse loans. Neither you nor your heirs will ever owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home must be used to repay the debt.

Major change! Financial Assessment went into effect April 27, 2015, so there is a more thorough evaluation of borrowers’ abilities to meet the financial obligations of their reverse mortgage loans.

Major change! A non-borrowing spouse is a spouse under the age of 62, and new loan amounts are available to borrowers with a non-borrowing spouse. New rules also allow the eligible spouses (under 62 years of age) of borrowers who pass away to stay in the home without foreclosure. The surviving spouse must continue to pay taxes, homeowner’s insurance, home maintenance and otherwise comply with the loan terms.

Counseling

HUD requires that all reverse mortgage applicants must undergo independent, third-party counseling. This ensures that borrowers understand the financial implications associated with their reverse mortgage, what their obligations are and what other alternatives may be available to them. We encourage and support third-party counseling so that you feel completely comfortable with the process and understand your options. For additional benefits offered to seniors check out https://benefitscheckup.org/

Carl Guzman, NMLS# 65291, CPA, is the founder and President of Greenback Capital Mortgage Corp. a Zillow 5-star lender http://www.zillow.com/profile/Greenback-Capital/Reviews/?my=y He is a residential financing expert and a deal maker with over 35 years’ industry experience. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! www.greenbackcapital.com ceg@greenbackcapital.com