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Retiring baby boomers are less likely to be mortgage-free compared to people their age in previous generations, according to Fannie Mae. That could hurt boomers’ financial security and exacerbate the housing affordability crisis.

Slightly less than 50 percent of the oldest baby boomer homeowners in 2015 were mortgage-free, 10 percentage points lower than the number of Silent Generation homeowners who were in the same age group in 2000 and mortgage-free, according to Fannie Mae. “The increasing prevalence of housing debt among older homeowners could compromise financial security in retirement by expanding housing affordability problems, crimping essential non-housing spending, increasing vulnerability to home loss through foreclosure, or limiting the accumulation of housing wealth,” Fannie Mae researcher Patrick Simmons writes on the GSE’s Housing Perspectives blog

Between 2010 and 2015, when the housing market was recovering from the crash, baby boomers were paying off their mortgages at an accelerated pace. But even if that trend continues, researchers predict, the rate of boomers who own their homes free and clear in retirement is unlikely to keep pace with previous generations.

“The greater propensity of boomer homeowners to carry housing debt might signal the need to expand consumer outreach and education that helps older mortgagors manage their monthly housing expenses, including ensuring that they have fully exploited opportunities to reduce monthly mortgage payments through refinancing,” Simmons notes. “Educating younger boomers about options for shorter-duration mortgages that accelerate principal pay-down might also increase the likelihood that they enter retirement with little or no housing debt. For older boomer mortgagors who wish to eliminate housing debt, an option worth considering is trading down to less expensive homes.”


Reverse mortgages are sticky wickets

Financial advisers often suggest you delay taking Social Security until full or normal retirement age (FRA) if not later – to age 70.

And the reasons are many: You'll get 100 of your primary insurance amount (PIA) if you wait to claim at FRA and, depending on your birth year, anywhere from 124 percent to 132 percent of your PIA if you wait until age 70; your surviving spouse will receive the highest possible benefit if you delay taking Social Security until FRA; and your monthly benefit will be higher after cost-of-living adjustments than if you had claimed before FRA.

But the delay often means finding income to make up the difference between what you would have received from Social Security – on average, it's about $1,369 a month now – and what you need for living expenses.

In recent years, advisers have suggested Americans do one, all or some combination of the following to bridge the gap: work, draw money from taxable, tax-deferred or Roth accounts and use a reverse mortgage.

The strategy to use a reverse mortgage to delay taking Social Security, however, has come under fire of late. In August, the Consumer Financial Protection Bureau (CFPB) issued a report that explored the tradeoffs of borrowing a reverse mortgage loan to delay claiming Social Security.

The CFPB found that, in general, "the reverse mortgage loan costs exceed the additional increase in Social Security that homeowners would receive in their lifetime by delaying Social Security benefits."

For instance, the CFPB noted that those who use a reverse mortgage to delay taking Social Security "assume debt for the principal loan amount, as well as for interest, mortgage insurance premiums (MIP), and monthly servicing fees, which are added to the principal every month."

The CFPB also wrote that origination and closing costs are often added to the loan balance since most consumers choose to finance these costs using the reverse mortgage proceeds. Over time, the balance of the loan increases as a result of compounding interest and MIP, and fees.

Furthermore, the CFPB wrote, using this strategy generally diminishes the home equity available to borrowers later in life.

Experts say the CFPB got some things right in its report, such as the risks associated with reverse mortgages. But experts took issue with the report's methodology and assumptions, which might cause homeowners to unnecessarily dismiss reverse mortgages as a retirement-income tool worth considering.

So, how might you go about thinking about the use and value of a reverse mortgage as part of your retirement-income plan?

• First, analyze. For many Americans, the equity in their home is their largest asset, says Marguerita Cheng, chief executive officer of Blue Ocean Global Wealth. And that equity can be turned into income with a reverse mortgage. But homeowners shouldn't use a reverse mortgage to delay taking Social Security, or for any other reason, in the absence of an analysis that addresses trade-offs, risks and rewards.

"Future debt is a risk, but the risk has to be weighed with the reward of what is being created," says John Salter, an associate professor at Texas Tech University. "There are no free lunches. But we should always have a comprehensive toolbox of strategies, and we must find the right tool for each person."

Cheng agrees that a reverse mortgage or a home equity conversion mortgage (HECM) might not be right for every person in every situation. But, she says, a reverse mortgage could help many widows and divorcees who often have lower Social Security benefits, lower 401(k) and IRA balances and increased health care costs achieve a better outcome in retirement.

• Manage longevity risk. Tom Davison, a partner emeritus with Summit Financial Strategies, says using a reverse mortgage to delay taking Social Security is primarily a risk reduction strategy rather than an income-maximization strategy.

"As risk reduction, it does indeed maximize income, especially in the later years," he says. "And the 'later years' is the key. It pushes the most possible inflation-adjusted, tax-advantaged dollars into those years."

• Manage sequence-of-return risk. Retirement researchers increasingly say homeowners ought to consider a HECM with a line of credit to manage the risk of having to withdraw money from retirement during down markets. The researchers call withdrawing money from falling retirement account balances sequence-of-return risk.

• When not to use reverse mortgage."Everyone wants to age in place," Cheng says. "But reverse mortgages don't make sense if it's not the right home to age in place. They also may not make sense if the house is too expensive to maintain."


Small Nest Egg, Big Dreams? Retirement Home Tips


Planning for retirement means making a lot of decisions, including when you'll stop working, how much you'll withdraw from your savings each year, and where you'll live. Many Americans view retirement as an opportunity to move into a house they'll love and live in for all their golden years. In fact, 64 percent of retirees either have moved or plan to move, according to a Merrill Lynch survey.

As a Senior Real Estate Specialist I can help with all phases of your move in Naples and Marco Island. From cleaning, handyman services, storage of personal items, to finding the perfect buyer for your home. Call, email, or go to my website

Some retirees move to be closer to children or grandchildren, to downsize into a more manageable home, live in a warmer locale, or to secure a more luxurious home where they can easily age in place.

"The decision of where to live in retirement is important and can directly affect quality of life in your golden years," says Geoff Lewis, president of RE/MAX, LLC. "Research by Trulia shows that in virtually all areas of the country, it makes better financial sense for retirees to buy a home, rather than rent. In fact, buying is nearly 42 percent cheaper than renting for seniors across the country."

Have a plan Ideally, you should think about where you want to live long before retirement, but it's never too late to think about your priorities. Do you want to be close to family or health care resources? Do you desire a home in the mountains or somewhere you'll never see snow again?

Trulia's research shows that some of the cities most popular for retirees are also ones where buying a home can save you the most money over renting. Desirable, warm-weather locations in Florida and Arizona offer significant value, even in regions where average home prices are higher.

Make a list of what you want in a home location so you'll have a starting point for your search. Don't delay

If possible, don't wait until poor health or declining finances force you to move somewhere that's not your ideal location. Move while you're still young enough to enjoy your dream retirement home. Get professional financial advice

It's important to protect your nest egg and keep it growing throughout retirement. A professional financial planner can help you understand what size mortgage is right for you, so your dream home doesn't strain your finances. Be mindful of amenities

When choosing a location and a home, in addition to your personal priorities, it's important to keep in mind accessibility to amenities important to seniors. Community features such as good transportation, quality of roads, safe neighborhoods, and access to health care, socialization opportunities, shopping and cultural venues are all options to consider.

Focus on must-haves Make a list of must-have features and those you would like your retirement home to have. Share the list with your agent to help him or her focus on properties that meet your criteria. Your list of must-haves and desirables will likely be very different from the list you made when you bought your first home. Now, a single-level house with large bathrooms and a level lot may be more desirable than a two-story with lots of bedrooms and a big backyard. "More Americans are looking for homes that will allow them to stay independent and living on their own throughout their retirement years," he says. "If that's your plan, look for home features that will help facilitate that, like wider doors, few or no exterior stairs, and good lighting."


Reverse mortgages: Myths vs. realities


STUART – There are a lot of misconceptions surrounding reverse mortgages. I've highlighted six here that seem to come up most often in conversations with clients. I hope these will help when considering whether a reverse mortgage is the right path for you.


Myth No. 1: The lender owns the home


You will retain the title and ownership during the life of the loan, and you can sell your home at any time. The loan will not become due as long as you continue to meet loan obligations such as living in the home, maintaining the home according to Federal Housing Administration (FHA) requirements, and paying property taxes and homeowner's insurance.


Myth No. 2: The home must be free and clear of any existing mortgages


Actually, many borrowers use the reverse mortgage loan to pay off an existing mortgage and eliminate monthly mortgage payments.


Myth No. 3: Once loan proceeds are received, you pay taxes on them


Reverse mortgage loan proceeds are tax-free, as it is not considered income. However, it is recommended that you consult your financial adviser and appropriate government agencies for any effect on taxes or government benefits.


Myth No. 4: The borrower is restricted on how to use the loan proceeds


Once any existing mortgage or lien has been paid off, the net loan proceeds from your Home Equity Conversion Mortgage (HECM) loan can be used for any reason.

Many borrowers use it to supplement their retirement income, defer receiving Social Security benefits, pay off debt, pay for medical expenses, remodel their home, or help their adult children. You worked hard for this asset and prudence along with budgeting should be the proper approach to enjoying proceeds received from your HECM loan.


Myth No. 5: Only poor people need reverse mortgages


The perception of the reverse mortgage as an assist for the "poor" borrower is changing. Many affluent senior borrowers with multimillion dollar homes and healthy retirement assets are using reverse mortgage loans as part of their financial and estate planning, and are working closely in conjunction with financial professionals and estate attorneys to enhance the overall quality and enjoyment of life.


Myth No. 6: My children will be responsible to pay off the loan


Reverse mortgages are a non-recourse loan. If your heirs wish to keep the home and the loan balance is more than the home value, they would only have to pay 95 percent of the appraised value to keep the home.

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