Are you an older homeowner considering whether a reverse mortgage is right for you?  Before considering one of these loans, it pays to know the facts about reverse mortgages. 

A reverse mortgage, sometimes known as a Home Equity Conversion Mortgage (HECM), is a unique type of loan for homeowners aged 62 and older that lets you convert a portion of the equity in your home into cash. But unlike a traditional home equity loan or second mortgage, you don’t have to repay the loan until you either no longer live in the home as your principal residence or you fail to meet the obligations of the mortgage.

Taking out a reverse mortgage is a big decision, since you may not be able to get out of this loan without selling your home to pay off the debt. You also need to carefully consider your options to avoid using up all the equity you have built up in your house. The national Housing and Urban Development (HUD) put out a great booklet about reverse mortgages Use Your Home to Stay at Home©.

Most reverse mortgage borrowers use the funds for paying for basic needs in retirement.

Reverse mortgages generally are not used for vacations or other "fun" things. The truth is that most borrowers use their loans for immediate or pressing financial needs, such as paying off their existing mortgage or other debts. Or they may consider these loans to supplement their monthly income, so they can afford to continue living in their own home longer.

Reverse mortgages may be less expensive than other home equity loans.

Taking out any home loan can be costly because of origination fees, servicing fees, and third-party closing charges such as an appraisal, title search, and recording costs. You can pay for most of these costs as part of the reverse mortgage loan. Reverse mortgage borrowers also must pay an upfront FHA mortgage insurance premium. This insurance guarantees that you will receive the expected loan payments. It also ensures that, when the loan does become due and payable, you (or your heirs) don’t have to repay more than the value of the home, even if the amount due is greater than the appraised value.

While the closing costs on a reverse mortgage can sometimes be more than the costs of the home equity line of credit (HELOC), you do not have to make monthly payments to the lender with a reverse mortgage. A HELOC requires regular monthly interest or principal and interest payments on the loan.

Reverse mortgages should not be used as a last resort.

It’s never a good idea to make a financial decision under stress. Waiting until a small issue becomes a big problem reduces your options. If you wait until you are in a financial crisis, a little extra income each month probably won’t help. Reverse mortgages are best used as part of a sound financial plan, not as a crisis management tool. If you live on a limited income, there are many public and private benefits that can be an alternative or supplement to a reverse mortgage.

Younger Boomers are increasingly likely to take out a reverse mortgage.

When HECMs were first offered by the Department of Housing and Urban Development (HUD), a large proportion of borrowers were older women looking to supplement their modest incomes. But that has changed. During the housing boom, many older couples took out reverse mortgages to have a fund for emergencies and extra cash to enjoy life. In today’s economic recession, younger borrowers (often Baby Boomers) are turning to these loans to manage their existing mortgage or to help pay down debt. Reverse mortgages are unique because the age of the youngest borrower determines how much you can borrow. It is important to note that borrowers deplete their home equity as their loan balance grows over time.

Anyone considering a reverse mortgage must get counseling.

Deciding whether to take out a reverse mortgage loan is challenging. It’s hard to estimate how long you’ll stay in your home and what you’ll need to live there over the long term. Federal law requires that all individuals who are considering a HECM reverse mortgage receive counseling by a HUD-approved counseling agency. A trained and certified counselor can help you understand the costs and features of different types of reverse mortgages, and evaluate the pros and cons of these loans for your situation. They will also discuss other options including public and private benefits that can help you stay independent longer.

It’s valuable to meet with a counselor before talking to a lender, so you get unbiased information about the loan. Telephone-based counseling is available nationwide, and face-to-face counseling is available in many communities. You can get counseling provided through a partnership between NCOA and GreenPath Financial Wellness by calling toll-free 855-899-3778. You can also find a counselor in your area at the HUD HECM Counselor Roster.

Some reverse mortgage borrowers may still face foreclosure.

It is possible for reverse mortgage borrowers to face foreclosure if they do not pay their property taxes or insurance, or maintain their home in good repair. This is especially a risk for older homeowners who take the entire loan as a lump sum and spend it quickly—perhaps as a last-ditch effort to salvage a bad situation. Those who struggle to pay the bills each month can become overwhelmed by health or other large expenses, making it difficult to keep up with borrower obligations. However, beginning in 2015, new rules require that reverse mortgage applicants undergo a lender financial assessment at the time of application. This is similar to the underwriting process in a traditional mortgage. The lender will look at credit reports, payment history, and household debt before initiating a loan.

That’s why reverse mortgage counseling is so critical. The counselor will help you look at the long-term responsibilities of the loan, not just the short-term benefits. They will also look at your financial situation more broadly to help you determine if a HECM is right for you. Always avoid any unsolicited offers for a reverse mortgage or for help with these loans. If you suspect you or your family have been targeted by a scammer, call 800-347-3735 to file a complaint with HUD.

Key Takeaways

If you have ever visited Hawaii, I am sure you find it hard to forget the experience.  It doesn’t matter which of the 5 major islands you visited, the tropical beauty and laid back pace is sure to be remembered. From the white sandy beaches, lined with palm trees to the tropical forest hikes, people return again and again, to nourish their need for relaxation and to reboot.

Hawaii is a magical place and people from all over the world, come here and consider buying their own piece of Paradise.  Owning real estate in Hawaii is a way to enjoy the tranquility of the islands on your terms, whenever you like, and it can be a sound financial investment, as well.  Here are just a few reasons why investors put their money in Hawaii real estate.

1. Hawaii Property’s Consistent Appreciation

Over the past 37 years (1985-2022) Hawaii real estate has increased a median average of 5.1% each year. Of course the real estate market does experience some ups and downs, as any market does, Hawaii’s allure is continual and property values tend to have steady appreciation.  Also realize that there are areas on each island that have a much higher appreciation rate, as well as some areas that bring that median down.  Areas in and surrounding tourist destinations, will always continue to increase.  As long as people continue to visit the islands, there will be those who decide to invest in and own a vacation home here, providing a strong underlying international support for the market.

2. Part of the United States

Hawaii is part of the United States, making this a safe investment. Considering investing in other tropical climate countries is always a consideration, but one never can tell if their investment is going to be safe from government tyranny, or hostile takeovers by cartels and oligarchs.  The safety and security of the U.S. legal system helps to distinguish Hawaii real estate from other tropical real estate investments, including the financially rewarding income stability from owning a rental property.

3. Work from ‘Vacation Home’ Opportunities

 If there is one thing we have all learned from the recent pandemic, it is that we can continue to work with our staff and clients, from virtually anywhere.  Even if that ‘Anywhere’ is a on a Tropical island in the middle of the Pacific.  Sure there is a slight time difference, which means you may have to wake up earlier to get into the morning meetings.  But, you also get off work earlier, to go off and enjoy the many things you like to do, like surf, hike, or paddle a canoe. This has caused a recent increase in our tourism and is likely to continue, which will support the number of potential buyers of real estate.

4. Real Estate with a Dependable Income

Hawaii relies almost solely on tourism.  Since the pineapple and sugar cane industries left the islands in the 1970s, making way for building more homes and cities, Hawaii has been left with tourism to be its primary source of revenue, with US military coming in at a distant second.  Hawaii was experiencing a constant 5% increase year over year of visitors prior to the pandemic. In the first half of 2022, it has started back up again, to pre-pandemic levels.  And the kicker is, we haven’t been allowed to have any visitors from the Pacific Rim, like Japan, Korea, China and Taiwan yet.  Because Hawaii’s climate is consistently warm year round, there is not real ‘slow season’.  Visitors from all over support our local economy and help support our real estate market. 

5. Hawaii’s Supply and Demand

To preserve Hawaii’s beauty and attractiveness, most of the land in Hawaii is set aside for agricultural and conservation.  Nearly 90% of the land is not available for real estate development.  Therefore, while there may be room for more homes, there is little chance that the island will be overbuilt, making the supply of homes less than the demand. Demand makes the prices go up.

6.  Aging Baby Boomers are Buying

Baby Boomer generation is now between the ages of 57 to 76.  While many are working later in life, they also have a lot of money built up in their investments and savings.  Enough to retire anywhere they want.  There is a huge recent flood of retirees from all over the country (predominantly the West coast), that are selling their homes and moving to retire in Hawaii.  The desire is not only limited to condos in Waikiki, but even the rural areas of the islands.  A huge subdivision is in the process for the area of Princeville, where people are buying 5-40 acre lots for their ‘Dude Ranch’. Thanks to the success of shows like Yellowstone, Longmire and others, people are looking for that ‘Last Frontier’ and they are willing to pay several million for it.    

7. High End Properties Bring Big Returns on Investment

Hawaii has the highest cost of living in the United States.  Not surprisingly, a large percentage of visitors who come to the islands can afford and expect high end accommodations and services. Whether they come to rent or come to buy, this upper end market tends to continue upward in value.  The Honolulu Board of Realtors announced the Hawaii Luxury Market increased, even during the pandemic, raising luxury home prices up over 26% from 2020-2021.  It is also expected to continue to increase due to low inventory of homes in the islands.

Deferring Capital Gains Tax

The advantages of investing in real estate still apply in Hawaii as they do anywhere else.  If you plan to rent out your Hawaii property, you may be able to deduct interest portion of the mortgage, maintenance fees, management fees, property taxes, insurance, and depreciation.   Even if you do not rent out the property to generate some cash flow, later on when and if you decide to sell your ‘piece of paradise’, any increase in the property’s value will be taxed at the more favorable, capital gains tax rate, instead of the typical tax rates.

For all of the reasons above, Investing in Hawaii makes sense for your portfolio, as well as for your sound peace of mind.

Bad news, home sellers: You’re less likely to see a bidding war for your property

Published: Sept 4, 2022 10:13 a.m. ET

A new report from Realtor.com found that the bidding-war rate has dropped to an eight-year low.  Even in cities like San Francisco it’s become much less common to witness a bidding war for a home.  Home buyers didn’t need to put up much of a fight to score their dream home last month.

Only 10.4% of the offers made by agents on behalf of home buyers sparked a bidding war in August, the real estate website reported Wednesday. That’s down from 11.4% the month prior, representing the lowest bidding-war rate recorded since at least 2011.

It’s a far cry from a year earlier, when 42% of written offers faced competition. The national bidding war rate reached its all-time high in March 2018, when 59% of offers were met with competing bids.

And though popular housing markets like San Francisco, Los Angeles and Boston still see elevated bidding-war rates, competition is much less fierce even in those locales. Nearly a third of Realtor made offers (31%) in San Francisco saw competition in August — but that’s less than half the share that faced a bidding war a year earlier (73.5%).

The relative lack of bidding wars isn’t likely to please most home sellers, as competition among offers can boost the ultimate selling price of a home.

The report from Realtor.com adds to the mixed signals the housing market has been sending in recent weeks. There’s been some evidence that the precipitous drop in mortgage rates throughout the summer has led to an uptick in sales activity. At the same time, affordability and inventory-related constraints persist, keeping many prospective home buyers out of the market. Recent geopolitical concerns have also represented a downer for the housing market.

“Recession fears have been enough to spook some would-be buyers from making the big financial commitment of a home purchase,” Realtor chief economist Daryl Fairweather said in the report. Fairweather noted though that consumers could acclimate to the volatility in markets if a recession doesn’t occur this fall or winter — and if they do get used to that new normal, they may begin to start taking advantage of the low rates in earnest.

Jacob Passy is a personal-finance reporter for MarketWatch

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Investors cheered the jobs news on Friday morning as March employment activity bounced back from a sour February performance, according to the monthly federal report. The news that employers created 196,000 net new jobs in March beat expectations and gives markets that had wavered a fresh indicator that job creation hasn’t lost all momentum.

The strong showing contrasts with just 20,000 net new jobs in February, although that number was revised up to 33,000 on Friday, which is still far below expectations. Those disappointing February results prompted some analysts to wonder if the now decade-long expansion in the labor markets was drawing to a close. March results suggest that’s not true just yet.

The national unemployment rates remains at 3.8%, on par with expectations. The good news in March was possible thanks to 49,000 new workers in health care, professional and technical services gains of 34,000 and restaurants and food service adding 27,000. Construction rose by 16,000 jobs, but manufacturing saw 6,000 jobs lost in March.

Wage growth was less impressive. Wages increased just 0.14% in March and is now up 3.2% over the last 12 months. Analysts expected year-over-year wage growth to hit 3.4%.

The results released Friday give new hope for continued economic growth. The Atlanta Fed is now projecting first quarter GDP to rise 2.1%, after much smaller estimates a few weeks ago.

Fed officials continue to keep a close eye on jobs as they weigh monetary policy moves. The Fed has paused its rate hikes as it awaits more economic data. Some had speculated after the disappointing jobs report in February that the Fed may be forced to reduce rates later this year. However, the good report Friday likely puts those concerns on hold. Investors will now watch other key indicators to see how long the Fed holds rates steady. No changes are predicted in the coming months, unless economic data shifts drastically.

10 Year Treasury yields leveled off around 2.5% in early trading Friday. Treasury’s traded off this week after bottoming out a 2.35% last Friday, ending March on a downward trend that sent the mortgage market firmly into refinance territory. While Friday’s news will likely calm the rally in bonds in the very near term, don’t expect a real rise in rates anytime soon. The refinance opportunity for many mortgage borrowers that purchased homes last year remains in place while low rates should continue to push the spring buying season into a renewed frenzy.

It's an overall good time to buy and add to your portfolio, or refinance your existing property, if you haven't already done so, in the past 3 years.