Articles for people who would benefit from a reverse mortgage or for family members of people who would benefit.

Too late to buy?

Many people in their 50s or 60s who do not own a home may think buying a home won’t benefit them, but it can.  This is the story of one such person.  Mary (not her real name) was single, age 59, and renting in 2012. Her income was  about $3,000/month.

In March 2013, she bought a two-bedroom condominium for $100,000 with a 3.5% down FHA loan.  Her monthly payment including consumer debt totaled $1,193.31.  While living there, she maintained the property and made some low-cost improvements.

In August 2015, 2.5 years later, Mary sold the condominium for $168,000. This enabled her to pay off her consumer debts and buy a three-bedroom condominium for $180,000 with 20% down.  With no remaining consumer debts, her monthly payments were $1,122.79.

Let’s say current appreciation continues. By March 2018, five years after she bought the first property, she should have enough equity to obtain a Reverse Mortgage and eliminate her mortgage payment.  She will then be in a home with expenses for taxes, insurance, HOA, and maintenance of about $550/month.  She will have two extra bedrooms that she can rent out using or to provide additional income.

The net effect? Based on current numbers, Mary may be able to stop working and live on her Social Security income when she reaches full retirement age.  If she had not purchased a home, it is unlikely that her Social Security alone would have been adequate to pay market rent.  Additionally, rooms on or may rent for more than what her condo will cost with a Reverse Mortgage.

I cannot predict future appreciation, but wouldn’t you agree that owning a home without a mortgage payment is a good option for low cost housing?
Orion Mortgage, Inc. offers Reverse Mortgages and HECMs to eliminate the mortgage payment for homeowners over 62.  Call Don Opeka at 303-469-1254 with questions.  Colorado MLO license 100007878

The Move Down Trap

People in their 40s, 50s or 60s commonly buy a “trophy house” while they are working and have a family, with the intention of “moving down” when they retire.  This can work fine if the “trophy house” is paid for, along with all other debt, before the buyer stops working.  If not, then the trap can be not enough equity to make a “move down” economically viable.  Let me give you two recent examples:

George (not his real name) bought a home for $262,000 with a $221,000 loan when he was 56 and his wife was 52.  Six years later, when he was 62 and wife was 58, they still owed about $210,000 and the value was $329,500.

George wanted to sell because he decided they could not afford to keep the house.  He hoped to buy another home without a mortgage, using the cash from the sale and perhaps adding a little to it.  Typically a seller will have to pay about 10% of the sale price in closing costs, commissions, repairs, moving expenses, and other miscellaneous costs.  In this case, a $329,500 sale would result in $32,950 in costs and $210,000 mortgage payoff, leaving about $86,550 cash to George.  If he adds about $40,000 cash, he can afford to pay  $125,000 for a home.

With $40,000 cash and a reverse mortgage, on the other hand, he could stay in the original home.  I estimate the cost of taxes, insurance, and maintenance on this 2092 square foot ranch-style home at about $500/month.  George may be able to find a much older condo to live in for $125,000, but taxes, insurance, and maintenance probably won’t be much different than in the $329,500 house.  In many cases, for the price of HOA fees on a condo, a homeowner can hire people to do the lawn care, snow shoveling, and other exterior maintenance.

If George decides to rent instead of buy, it’s likely his rent will be significantly more than $500/month, and the $86,550 proceeds of the sale will dissipate quickly.

Here’s the second example. Henry (not his real name) bought a home for $428,200 with a $385,380 loan when he was 60 and wife was 59.  Three years later, Henry inquired about a reverse mortgage.  In that time, the property had increased in value to about $570,000 and the loan had been paid down to $367,400.  With these numbers, Henry needed about $65,300 cash to obtain a reverse mortgage.  If the home value increased to $625,500, the maximum lendable value for an FHA Reverse Mortgage, he still needed about $36,000 cash to get the reverse mortgage, or he had to pay the loan down to about $330,000.

On the other hand, selling the home for $570,000 would result in costs of $57,000 and a mortgage payoff of $367,400, leaving about $145,600.  At Henry’s age, he could buy a home under $300,000 with $145,000 cash and a reverse mortgage.

A recent quote for a newer 1 bedroom apartment in a senior community was $1,755/month, and a 2 bedroom was $2,245/month.  If Henry chose to rent, his $145,000 wouldn’t last long.

For both George and Henry, the income reduction associated with “retirement” came sooner than expected.  With a large mortgage and limited additional financial assets, both George and Henry were left without any attractive options.

I recommend that people moving in their 40s or 50s consider homes that they can sustain into retirement.  I understand that a bigger and more expensive home is always attractive, but being forced to choose a less expensive one as a result of financial pressure can have a disappointing outcome.

Reverse Mortgage Planning

I met a man whom I’ll call George at a networking event last summer.  In 2013, George and his wife Kathy bought a home for $428,000 with 10% down and a $385,389 loan.  In August 2016, George asked me if they could get a reverse mortgage.  George is 64 and Kathy is 62.

Their Situation Didn’t Qualify for a Reverse Mortgage

I reviewed their current situation and found that the current value of their home is about $570,000 and they owed $367,396.  That balance is too high to transfer to a reverse mortgage.  They don’t have the cash to pay the balance down now, but if they wait the value should continue to increase.  

Unfortunately, the maximum lendable value for an FHA reverse mortgage in the Denver metro area in 2016 is $625,500.  This means any increase in value above $625,500 will not result in more money to pay off the existing loan.  When I entered a value of $625,500 into the reverse mortgage software along with George and Kathy’s birthdates, I found that it could pay off a $313,760 loan balance.  My conclusion here was that appreciation alone will not make it possible for George and Kathy to get a reverse mortgage on this property.  They really need to get the loan balance down to about $313,000.

Finding a Solution

Their existing loan had a rate of 4% and private mortgage insurance.  Refinancing to a 20-year loan at 3.5% with no closing costs to the borrower would mean that the payment would remain about the same as they are paying now while the balance would reach $313,785 in just 4 years.  Without this refinance, it would take years longer before they could qualify for a reverse mortgage unless they made higher payments.
George and Kathy’s story is one example of how we look beyond what the borrower asks in order to find a solution. Instead of just declining a loan, we look for ways to turn a “no” into a “not now,” giving the borrower a plan to get the loan they want.

How to Select the Right Mortgage

The ads in the mortgage industry almost always focus on “we will give you the lowest rate.” The advice the government often gives is to shop for the lowest APR. While these approaches have merit, they typically overlook the issue of closing costs and how long it will take to recover the closing costs through interest savings. Some suggest refinancing when a borrower can lower the rate 2% or more. For reasons I explain below, we can easily justify refinancing for a much lower rate change.

APR Calculation

The APR calculation is valid, but it is based on the assumption the borrower will remain in the home for the entire term of the loan and make the minimum payments for the term of the loan. The APR comparison process breaks down if the borrower sells the home before the loan has run full term, refinances before the loan has run full term, or prepays the loan.

Based on my personal experience and watching the behavior of many customers, I find the above assumptions rarely turn out to be true. My observation is that almost all loans are prepaid when the borrower moves; the borrower refinances before the end of the loan term, or prepays the loan. I do not have statistics to show the statistical repayment rate.

Making a Loan Choice

OM PostMy preference is to look at the loan choice with three considerations:

  • What happens if it is in place longer than I expect?
  • What happens if the loan is in place for the time I expect it to be?
  • What happens if the loan is paid off earlier than I expect?

The easiest of these is the comparison for a loan that lasts the expected time. People often choose hybrid ARMs because they expect to be in the house for 5-7 years and then move. If this really happens, then the choice works well. Unfortunately, many people chose ARM’s during the mid-2000s and then were trapped when the economy declined. Some found themselves in “exploding ARMs” with declining incomes. The result was an expensive foreclosure. We generally recommend choosing a loan that is tolerable if the borrower must stay in the property and not refinance for a much longer time than expected.

The other scenario we have seen play out over the last couple of decades is mortgages routinely being paid off early. While some are paid because of a sale, early payoff because of a refinance is more common. The refinances occur for either of two reasons: Market interest rates have declined or market home prices have increased. Either one can cause a refinance.

Lowest Rate vs. Lowest Fees

Every loan involves a choice between lowest rate, lowest fees, or some compromise of these. I generally recommend looking at the tradeoff between rate and fees through the lens of cost recovery time. If the tradeoff is such that a year or two of interest savings will recover the difference in fees, then choose the lower rate. If it will take 8-10 years of interest savings to recover the difference in fees, take the lower fees. The disclosure of trade off between rate and fees is not generally in a form for public distribution, but I am always happy to discuss it in person and explain the options to any borrower.

What is important is that we can often lower a borrower’s rate with no cost to the borrower, or provide a debt consolidation loan without increasing the interest rate. Let us do a free analysis of your situation to see how we can help you.

Reverse Mortgage for an Unmarried Couple

Recently, a lady came to us for a Reverse Mortgage and wanted to add her significant other.  They had been living together for more than 20 years.  The home has been in her name alone.  She wanted to add him to title and get a Reverse Mortgage so either could continue living in the property if the other dies.  While the process of adding him to title and originating a Reverse Mortgage in both names is relatively easy, I recommended she consult a lawyer to be sure estate issues were arranged as she wanted them.

RM older unmarried couple

The process of separating the financial interests of unmarried borrowers is easy of both parties agree, but can be challenging if there is disagreement.  It would be important to arrange the estate succession properly so that if either one died first, the succession and beneficiaries of the estate were arranged per her wishes.  It would also be important to understand how this transfer might affect payment for long term care or other medical conditions, particularly if Medicaid became a payer.

I would be happy to speak with you regarding this option.  Please contact me at 303-469-1254.  For a listing of quality professionals I’ve worked with, please visit this page.

Reverse Mortgage Success

When I talk about Reverse Mortgages, the common reaction is that people who would benefit from them don’t want one.  My response is that during my many years in the mortgage industry, no one has ever come to me wanting a mortgage.

Goal Examples
  • You want to live in a certain home, but don’t have enough cash to pay for it.
  • You own a home and want lower payments, or less interest.
  • You have equity and want to convert the equity to cash so you can buy something.

These same things apply whether it is a traditional mortgage or a Reverse Mortgage.  The critical difference is that with a Reverse Mortgage, the payments are deferred until the borrower no longer lives in the home.  Instead of making monthly mortgage payments, the mortgage payments are added to the loan balance.

parents at door greeting kids

Successes of Clients We Have Assisted
  • Borrowers have come to us for purchase loans when they wanted to move closer to their children. They had equity from the sale of another home, but not enough cash to pay for the home they wanted.  By combining their cash with a Reverse Mortgage, they bought the home they wanted.
  • Another borrower sold a home that was free and clear and bought a more expensive home in a nicer location with a Reverse Mortgage and no monthly mortgage payment. She just had to pay taxes insurance and maintenance while living in the property.
  • One borrower had an $1,100 house payment and about $1,300/month social security. An inheritance allowed her to pay the mortgage down enough to get a Reverse Mortgage, eliminate the mortgage payment and stay in her home.
  • Some borrowers need additional income. By converting the equity to cash with a monthly payment for life, the borrower can get the income they need without depending on children or others.  This option may be beneficial for children because it can eliminate the need to write a check to help parents each month, and may or may not result in a lower inheritance later.
  • A 76 year old lady wanted to move, but did not want a Reverse Mortgage. She could easily qualify for a traditional mortgage.  When I pointed out that a Reverse Mortgage might allow her to give up her job, she became interested.
Reverse Mortgage Requirements

The basic requirements to get a Reverse Mortgage are that at least one borrower must be 62 or older, live in the property as a primary residence, complete FHA approved counseling, and satisfy income, asset, and credit underwriting guidelines.

The reasons for a Reverse Mortgage are as varied as the people who get them. Please feel free to contact me at 303-469-1254 to discuss your current situation and what your goals are.  I would be happy to explain your options and provide a free, no obligation, proposal.

Improve Cash Flow With a Reverse Mortgage

Reverse mortgages can be used in many ways to increase cash flow for daily living.

Following are some examples:

A single lady came to us with about an $1100/month mortgage payment and about $1,300/month in Social Security income.  This income/outgo situation clearly could not result in a balanced budget.  She owed too much on the home to qualify for a Reverse Mortgage.  When she received an inheritance, she was able to pay the loan balance down to where she could qualify for a reverse mortgage.

An 80 year old man was spending down his retirement accounts at a rate where the money would soon run out.  He chose an option that gave him payments for 10 years that would allow him to make his retirement accounts last.  After 10 years he planned to sell the home and move, but the Reverse Mortgage allowed him to live comfortably in his house for another 10 years.

son helping father with finances

A 99 year old man had a home that was free and clear, but he was reaching the end of his financial resources to pay for care and maintain the property.  A Reverse Mortgage allowed him to buy a new furnace and continue to pay for private pay care so he could continue living in his home.

A 78 year old woman was referred to us because her retirement savings was being depleted such that she would be out of money in 4 years.   She had a home that was free and clear.  A reverse mortgage provided enough monthly income so that she would not have to deplete her investment accounts.
elderly woman at laptop with daughter

A 70 year old couple was depleting their investments at a rate that would leave them out of money soon.  They had enough equity in their home to obtain a Reverse Mortgage that would eliminate the mortgage payment, installment debt, and credit card debt.  By eliminating the debt payments, they have enough income to balance the budget and stay in their home.

A couple that had spent more than 25 years as missionaries owned a home.  It was not paid off, and their missionary support was dropping.  A Reverse Mortgage allowed them to eliminate the mortgage payment and continue living in the home with their available income.

I’m always happy to provide free information to help a buyer understand their options with either a conventional forward mortgage or a Reverse Mortgage.  Please contact me to discover options that may be available to you.

When Reverse Mortgages Make Sense

A common situation where a Reverse Mortgage is helpful is when a person over 62 wants to move, but the equity in the old home is not adequate to pay cash for the new home.  Some recent examples:

You may be able to move and not have to worry about having a mortgage payment

A lady was living in Utah home without a mortgage.  After her husband died, she wanted to move closer to her children in Colorado.  Because of the difference in home values and the costs associated with the move, the proceeds from the sale of the old home would not pay for a replacement in Colorado.  We used a Reverse Mortgage to help her buy a townhome that met her needs without a mortgage payment.

A couple had a home in Nevada where property values had declined.  They had a mortgage on the old property, but wanted to move closer to children in Colorado.  The equity from the home in Nevada was not enough to buy a replacement home in Colorado.  A Reverse Mortgage along with the equity from the sale of the Nevada property allowed them to buy a home in Colorado without a mortgage payment.

mature couple

You may be able to buy a home you originally thought to be financially out of reach

A single lady owned a home with no mortgage and wanted to buy a more expensive home.  She did not have enough cash to buy the home she wanted without a mortgage.  She did not have enough income to qualify for a regular amortizing loan, but she was able to buy the home she wanted with a Reverse Mortgage.

You may be able to stop working and still be able to afford the home you want

A 76 year old widow wanted to move from a regular house to a townhome so she wouldn’t have to deal with exterior maintenance.  She had a mortgage on the old home and needed a mortgage to buy the home she wanted.  We made the arrangements for a conventional loan using the equity from the old home as down payment.  She had enough income from her job and social security to qualify to the loan she wanted.  I pointed out that a Reverse Mortgage might allow her buy the townhome she wanted and give up the job she needed with a forward mortgage.

I’m always happy to provide free information to help a buyer understand their options with either a conventional forward mortgage or a reverse mortgage.
Please contact me at 303-469-1254 so I may assist you with your specific scenario.


Where does your mom want to live?  Where do you want her to live?

The background to these questions is that as we all age, our living arrangements often need to change.  The changes can be the result of employment changes, health changes, or death of a spouse. The employment changes typically come as a person reaches the end of their full time employment.  Health changes can be a result of typical aging or other issues.  Death of a spouse may result in a desire for a change of scenery, often moving closer to children.35085010_m

Option 1 -Recombine Households

For some, the answer is to recombine the households of parents and children again after decades of living apart.  This could mean a child moving into the parent’s home as a care giver.  It could mean parent moving into the child’s home, or it could mean parents and child buying a home together.  Any of the above can be a solution for a particular family.  We can offer names of people who help facilitate these kinds of combinations.  They often involve a need to downsize the total accumulation of “stuff”.

Option 2 -Move to a Senior Community

For some, the answer is to move to a senior community.  There is a wide range of communities offering various levels of service to make life easier for mom as she ages.  The services range from independent living to full skilled nursing care.  Moves to these kinds of communities often involve selling the family home and using the proceeds to pay for life in the new community.  We can offer recommendations to people who will help you find the right community for mom.  This involves not just cost issues, but also finding people with similar capabilities and interests. These professionals are often paid by the community, much like a real estate agent, so there is no cost to the person moving in.  We can recommend real estate agents who will maximize the value received from the home being sold to pay for the move.

Option 3 -Mom Lives in Her Own Home

Surveys consistently find that the preferred choice is for mom to live in a home of her own.  The preferred option typically is for mom to live in a home she owns without a mortgage, but sometimes there are issues that go along with this option:

  • In some cases, when dad passes away, there is a reduction of income. One option to close the gap and keep mom in the home is for the child/children to write a check each month to subsidize her income.  Another option is to use a Reverse Mortgage to spend the equity in the house.
  • In other cases, a move to a different home is best case. In many cases, the move may be to move closer to the children/grandchildren.  The move may involve moving to another city or state.  If the move is from a higher cost to a lower cost market, there may be enough cash from the sale of the old home to pay cash for a new one.  The children may want to buy and pay for a home for mom to live in.  If mom has enough income to qualify, a traditional mortgage may close the gap between the equity available and the purchase price.  If none of the above solves the funding gap, a reverse mortgage combined with the equity from the sale might be enough for mom to buy the home she wants.

Contact me at 303-469-1254 for resources to help with any of the above.  We know people in many professions that can help with life’s transitions.  Just tell us what you are searching for.  We would be happy to connect you with people who can help.  If a traditional of reverse mortgage might help, we are happy to explain the options.