Reverse Mortgages – Funding Your Retirement

Most people don’t know what a reverse mortgage is; and, because reverse mortgages are a relatively new idea for seniors in the United States, there is a lack of understanding. The reality is that Reverse Mortgages may be an answer to one of the biggest economic problems facing us in the United States, which is that baby boomers don’t have enough money to retire.

In spite of available 401K plans, the Federal Reserve is quoting that around one-third of the baby boomers have little to no retirement savings and are in danger of not having enough money to maintain their standard of living in retirement. If you are in this situation, 62 or older, you have a second chance with a Reverse Mortgage, which is a unique type of loan that allows homeowners to use the equity in their home to eliminate monthly mortgage payments and/or supplement their income without having to sell their home or give up title.

Unlike traditional mortgages, a reverse mortgage does not require a monthly mortgage payment, it’s the opposite, you can take the equity out of your home in one lump sum; or as long as you remain current paying your property taxes, insurance and home maintenance, you can take it in monthly payments. The loan balance does not need to be repaid as long as one of the borrowing spouses remains living in the home. When both borrowers are no longer living, the home is sold and the amount owed is paid back to the lender. This is a non-recourse loan, which means if the amount owed exceeds the value of the equity in the home, the lender has no recourse. Any surplus beyond the value of the original appraisal will be disbursed to the heirs.

Pros

  1. A reverse mortgage requires no repayment as long as the home is occupied and the borrower remains current on their obligations.
  2. Enables a person to supplement a fixed income with tax-free funds in order to cover daily expenses.
  3. Allows the client to use their equity in whatever way they choose.
  4. If the loan is paid off early, there are no prepayment penalties.
  5. The upfront fees can be financed into the loan to prevent any out of pocket costs.
  6. Requires pre-loan counseling in order to make certain that the borrower is completely informed.
  7. Federally-insured so the borrowers can never owe more than the home is worth due to the non-recourse feature.
  8. Provides flexible disbursement options (i.e. monthly sum or line of credit).
  9. Eliminates any existing mortgage.
  10. Interest rates may be lower than other options.
  11. Could give a borrower the money needed to get off of Medicaid and onto Medicare.

Cons

  1. Depending on the program, the upfront fees can be higher than other types of financing.
  2. Reduces the amount of equity left to your heirs.
  3. Does not allow interest to be taken as a tax deduction until payments are made or the loan becomes due.
  4. Can become due and payable in full if the terms of the loan are not met.
  5. Reverse mortgages are not well understood by many people.

The process of getting a Reverse Mortgage involves choosing a lender, attending a session with a HUD–approved financial counselor to make sure you are completely informed, getting your home appraised and inspected, and if you qualify, your loan will be funded.

Many baby boomers’ biggest asset is their home, and a reverse mortgage allows you to stay in it, rather than relocate elsewhere. There are neither payments involved nor are there any income or credit requirements. Having a reverse mortgage means you are borrowing from your home’s equity. The reverse mortgage lender does not take the title to your home, you remain the owner. While this means that you are still responsible for property taxes and any general costs and repairs associated with home ownership, the loan is simply a lien against the property.

So, if you didn’t save well for retirement a reverse mortgage may be right for you; OR, if you have lots of equity in your home and no heirs, you may want to have some fun with your equity.

Graham Farran

Manager/ Broker

For more details go to Reversemortgage.com

 

6 Reasons to Sell Now!

  The housing market for sellers has been great in Southern Oregon for the past several years, and pretty lean for buyers. Prices have climbed and properties have sold quickly. But, as the saying goes, all good things must come to an end, and the hot seller’s market is beginning to cool!

  A balanced market is defined as a market with 6 months of inventory of homes for sale. Fewer homes on the market make it a seller’s market and when there are more homes on the market, it’s a buyer’s market.  Today we’re still in a seller’s market but heading toward a buyer’s market. During most of 2018, both Jackson and Josephine counties had only 2 months inventory of homes for sale but today Jackson County has 3.4 months of inventory and Josephine has 4.5 months of inventory. It’s already a buyer’s market for lots and land with 25 months of inventory in Jackson County and 19 months of inventory in Josephine County.

  Every year we see the majority of homes come on the market in spring and summer so it’s natural to predict that inventory will rise as the days warm up and we will head into a buyer’s market. Spring and summer are still a few months away so there is still a chance to sell your home for top dollar. If you’re thinking of selling your home, here are the 6 biggest reasons to sell before spring or summer in 2019.

     1. You won’t be the only listing for long The top reason sellers have been in the driver’s seat for the past several years is inventory. There simply haven’t been enough homes on the market to keep up with buyer demand. When a new home came on the market for sale in the right price range, buyers would flock to it. In certain subdivisions, you might have been the only listing, and you could put your home up at a high asking price and buyers knew it was your home or no home. As we stated above, the tide is turning this year, and inventory of homes for sale is increasing. For now, except for lots and land, buyers still outnumber homes for sale. But if you’re thinking about selling and don’t want to compete with your neighbors, now is the time.
     2. You still stand to make a ‘handsome profit’ Home prices have been on the rise for the past seven years. The median home price by the end of 2011, in Jackson County was $154,000 and it nearly doubled to $280,000 by the end of 2018. This is great news for homeowners. But here is the concern – last year Jackson County saw homes sell at 97.5% of asking price and this year it has fallen to 95% of asking price. We have also seen a rise in price decreases of homes on the market with a recent climb to nearly 20 price decreases per day which normally is an indicator that it’s headed away from a seller’s market.  That being said, home prices are still continuing to increase, but at a slower rate than in 2018.
     3. There’s high demand for homes under $280K There’s more good news if you own a home below the median price of $280,000. Not only is that inventory increasing at a slower rate than its luxury counterparts, but there are more buyers shopping at those price points. Homes in these price points have the greatest demand and can still see multiple offers.
     4. Mortgage rates are at a new low Something strange has been happening over the past few months. Experts predicted mortgage rates would rise—and at the end of 2018, they were indeed ticking upward as expected. But since the start of the year, rates on a 30-year fixed mortgage, the most popular home loan, have been falling, sliding last week (2/27/19) to a new 12-month low of 4.33%.  These historically low mortgage rates mean you could have more buyers affording your home. This temporary dip in rates creates an opportunity for trade-up buyers as well. After all, if you’re selling your home, there’s a good chance you’ll need to buy another one. Interest rates will go up so for now sellers need to take advantage of low rates as much as buyers. Sellers don’t want to get stuck in their homes when rates go up and buyer affordability no longer makes sense to move.
     5. Millennials are flooding the market Historically speaking, people tend to buy their first home around age 30. And guess what? We’ve got a whole bunch of people turning 30 in the next two years—nearly 5 million, in fact, according to Realtor.com data. So, you can count on those millennials to be a driving force in the housing market. Not only are younger millennials buying their first homes,  older millennials in their middle to late 30s have already owned a home for a few years, and are finding this a good time to trade up.
     6. Victims of the Camp fire in Paradise are seeking a new place to call home The majority of the town of Paradise California was destroyed by fire last November including stores, gas stations, restaurants and infrastructure. The clean-up will take years and much of the population is looking elsewhere to rebuild. Many of them were already retired and now they’re looking to re-retire somewhere else. It turns out that Southern Oregon has many similarities to Paradise, California and we’re currently seeing a large influx moving here. Some have already received insurance checks and are out looking for homes and some are in many of our furnished rental homes waiting for their insurance checks to arrive. Because we are such a small community this influx from Paradise is a significant boost to our local population and our housing market.  This is, however, just a one-time, short term increase in home buyers and will be over soon.

  So, if you are thinking of selling, now is the time.  Home prices have almost doubled over the last 7 years, we’re still in a seller’s market, interest rates are low and we have lots of buyers.

Graham Farran
Broker & Manager
Expert Properties

How the New Tax Law Affects Homeowners

Tax season is upon us once again and to make it even more interesting this year, the tax code has changed, along with the rules about tax deductions for homeowners. Many homeowners who used to write off their property taxes and the interest they pay on their mortgage, will no longer be able to.

Standard Deduction Increased

It’s not that you can’t itemize and write off your mortgage interest or property taxes, it’s that the standard deduction, that amount everyone gets, nearly doubled under the new law. It’s now $24,000 for married, joint-filing couples (up from $13,000), and $12,000 for singles (up from $6,500).

Many more people will now get a better deal taking the standard deduction than they would with itemizing all their deductions. The Federal Government predicts the number of homeowners who will be able to deduct their mortgage interest and property taxes under the new rules will fall from around 32 million to about 14 million, that’s about a 56% drop

Single people may get more tax benefits from buying a house than a married couple as you can reach, and potentially exceed, the $12,000 standard deduction more quickly.

Personal Exemption Repealed

One caveat to the increase in the standard deduction for homeowners and non-homeowners is that the personal exemption was repealed. No longer can you exempt from your income $4,150 for each member of your household, and that might temper the benefit of a higher standard deduction, depending on your particular situation. 

For example, a single person might still come out ahead. Her/His $5,500 increase in the standard deduction is more than the $4,150 lost by the personal exemption repeal.  

But consider a family of four with two kids and in a 22% tax bracket. They no longer have a personal exemption of $4,150 or $16,600 total for the four of them. Although the increase in the standard deduction is worth $2,420 ($11,000 x 22%), the loss of the exemptions would cost them an extra $3,652 ($16,600 x 22%), so they lose $1,232 ($3,652 – $2,420).

So, bottom line, your household composition will affect your tax status.

Mortgage Interest Deduction

The new law caps the mortgage interest you can write off at loan amounts of no more than $750,000. However, if your loan was in place by Dec. 14, 2017, the loan is grandfathered, and the old $1 million maximum amount still applies. In Southern Oregon, most people don’t have a mortgage larger than $750,000; they won’t be affected by the cap.

But if you live in a pricey area like San Francisco, where the median housing price is well over a million bucks, or you just have a seriously expensive house, the new federal tax laws mean you’re not going to be able to write off interest paid on debt over the $750,000 cap.

State and Local Tax Deduction

The state and local taxes you pay, like income, sales, and property taxes, are still itemizable write-offs. But, for the tax year 2018, you can’t deduct more than $10,000 for all your state and local taxes combined, whether you’re single or married. (It’s $5,000 per person if you’re married but filing separately.) If you make a lot of money, this will hurt you as your deduction will be capped at $10,000 but a $10,000 cap will not affect others.

 

Rental Property Deduction doesn’t change

The news doesn’t change for landlords. There continue to be no limits on the amount of mortgage debt interest or state and local taxes you can write off on rental property. And you can keep writing off operating expenses like depreciation, insurance, lawn care, and utilities on Schedule E.

 

Home Equity Loans

You can continue to write off the interest on a home equity or second mortgage loan (if you itemize), but only if you used the proceeds to substantially better your home and only if the total, combined with your first mortgage, doesn’t go over the $750,000 cap ($1 million for loans in existence on Dec. 15, 2017). If you used proceeds to pay medical expenses, take a cruise, buy a BMW or anything other than home improvements, that interest is no longer tax deductible.

The new rules don’t grandfather in old home equity loans if the proceeds were used for something other than substantial home improvement – you can no longer deduct the interest.

The Catch

All the new tax laws take effect in January of 2018 but here is the catch, they all expire in January of 2025, so in six more years we’re back to the old tax code.

 

Graham Farran

Broker / Manager

    Where There is Smoke There Isn’t Always Fire!

  A lot of outdoor enjoyment was lost last summer due to the smoke filled skies in our valley, but what is noteworthy is how few homes have been destroyed by forest fires in Southern Oregon compared to the homes lost by fires in California. Every summer we have many lighting caused fires, causing hundreds of acres to burn but very few homes are ever destroyed.

  This is not the case in California where every fire seems to be becoming larger and more devastating than the last. None has had such a direct effect on Southern Oregon as the November 8th Camp fire that destroyed nearly 12,000 homes and 500 businesses in the Northern California town of Paradise. This sleepy town was a lower-income, retiree-based city with a population just over 26,000 tucked into the Sierra foothills at 2,000 feet elevation. Now that the town, homes and businesses are gone, the future of Paradise is unclear and there is a mass relocation movement headed north. Most of California is too expensive for retirees, so moving a couple hours north to Southern Oregon makes a lot of sense; our valley has a similar feel with the mountains, small towns, and outdoor living.  We have been filling our rental homes and furnished rentals with Paradise refugees who need a place to land and restart their lives. Some have already received insurance checks and are looking to purchase a home, but many are still waiting, which makes it really hard to start over without means.

  It’s heart-warming to welcome the Paradise refugees to their new home in our valley, but it’s also heart-wrenching to hear their stories of loss of friends, pets, personal property and losing their sense of home. One couple in a furnished rental is busy populating the bookshelves with an old book collection saved from the fires. They lost many of their personal belongings, but managed to save some prized books. Another refugee asked for a rental home that is “secluded where no one could hear her cry”.  Many of the new refugees have owned their own homes for years and not rented since they were in their teens, so they are unfamiliar with the process and the cost. There are heartwarming stories as well, such as one couple’s neighbor that went back to her burned out home every day to see if her dog had returned, and then finally, he came walking out of the woods to a tearful reunion.

  If you run into a Paradise refugee, make sure you welcome them with open arms knowing what they have been through and what they have lost. Knowing them makes me feel grateful that I have all my family, friends, pets, and possessions intact. I also feel grateful to our local fire-fighters who have kept our homes safe, year after year – please keep up the good work!

– Graham Farran