Brandon,
My wife and I are buying a home and we are so confused with the options for homeowner’s over 60 in buying a home. “Should we rent?” Should we pay cash?” Should we finance and just make long term payments with the tax benefits? Or should we look into the Senior Reverse purchase that so many of your clients are opting for?” Can you give me a quick simple answer?
Well, I wish that was a simple question, but, certainly the main question as a senior mortgage banker and a registered investment advisor representative that is asked of me every week if not daily.
There is no such thing as a black and white answer for everyone. Just like there is not the same financial plan or investment for everyone.
Here are some questions for you. “How long do you plan on holding on to the home – for long term? What is your income today and what would happen if you lost a spouse. Would your income drop, most likely at minimum you lose a social security check – right? Also, what is your savings like and do you have a long term care plan?
The largest aspect of mortgage planning today is this: Mortgage brokers and mortgage bankers do not know how to analyze long term plans to help cover long term retirements.
Here is a quick down and dirty explanation:
1. If you have plenty of funds to not ever outlast your retirement including health long term options, you’re one of the few that has the luxury of paying cash.
2. Even if you can, as mentioned in #1, most top investment firms today will argue that even if you have the funds to do so, why would you ever pay cash when your investment funds can do better than holding it in your home? For example, if you can finance at 4.5% long term and write off the interest, depending upon your tax bracket, you are borrowing at 3.5% for example. So, if your investment or retirement funds are doing better than 3.5% why would you ever pay cash for the home, but simply grow your estate, retirement and legacy faster and stronger by carrying a long term mortgage for life?
3. The benefits of a conventional loan are low interest rates today and a tax deduction with no pre-payment penalties and also the flexibility of paying it down and re-casting the note to lower the payment anytime you choose. So, great flexibility. Great interest rates historically speaking, and low down payments. That is why 50% overall of our clients still choose this option more than the other two.
4. Finally, the HECM or reverse purchase. This loan is great for any homeowner that is buying a home for the long term. They may not have any kids or they may have many kids and they are securing their home for life with no mortgage payment for life. You put half down on any home you want and you’re done. Free and clear for as long as you and your spouse are alive and want to live in the home. The home is bullet proof and no one can ever put a lien or encumbrance on your home for life. You can also purchase other homes, cars, autos and the reverse loan does not show on credit or is a liability.
5. So, with the reverse purchase, you pay half the cash and there are not payments to boot. So, if you have the down payment and you are looking at the long term, with any concern about losing income from a spouse and or outliving your assets, this is a great option.
To make things simple, there is no such thing as simple. Today, more than ever our senior clients need a mortgage planner that is not selling anything, but educating to all options of mortgage ideas today, but most importantly involving their financial and investment plan as much as any time in history because of what is at stake.
For all free consultations, please contact your licensed advisor or our office and review in more detail what is available today.
Brandon Hansen is a Senior Mortgage Banker, Registered Investment Adviser Representative for Cherry Creek Mortgage / National Advisor’s Network. He can be contacted at 435 668 2840 / 435 525 2266.