Prepping for Inflation and an Uncertain Economy with a Reverse Mortgage

economic collapse recession retirement reverse mortgage

Why reverse mortgages are more important than ever during economic uncertainty

Much damage has been to the U.S. economy in the last two years. The Covid-19 pandemic coupled with shutdowns, and central banks’ efforts to stimulate the economy have left the financial markets and world economies on the precipice of a deep recession or worse.

Just as economists in 2007 didn’t see the signs of the 2008 financial crisis, today most economists predict a “return to normal”. However, one man sees things differently. Ray Dalio, a billionaire investor who founded one of the largest hedge funds predicted both the 2008 housing and financial crisis and the fallout from the coronavirus pandemic.

On CNBC’s Make it Dalio warned that a new economic collapse is at hand. Such a prediction is not as far-fetched as one may imagine with Russia amassing troops for a possible invasion of Ukraine and China’s repeated threats to invade Taiwan. War is an expensive business. With inflation already at a 40-year high, Americans are now beginning to feel the brunt of price hikes and supply shortages. And should the Federal Reserve accelerate interest rate hikes, the financial markets are likely to fall leaving retirees in a precarious position.

Amidst this doom and gloom, there stands a glimmer of hope for older homeowners and retirees.

[read more]

The reverse mortgage. While generally dismissed and misunderstood reverse mortgages could be the saving grace for retirees who find themselves with diminished retirement savings in a market sell-off or pinched by inflation. How much equity are older homeowners sitting on? $9.5 trillion according to the National Reverse Mortgage Lenders Association and RiskSpan’s Reverse Mortgage Market Index. In fact, that figure surged by 8.3% in 2020 thanks to rising home values.

As one investor said, you only make money in markets you get out of in time. Financial professionals will tell you that attempting to time the stock market is a fool’s errand. But what about the timing of securing your fallback fund before home values fall?

Securing access to loan proceeds before you find yourself if a cash flow crisis is like buying an umbrella before it rains. That’s precisely what qualified older homeowners could do today by taking a reverse mortgage with today’s low-interest rates and high home values. Those with little or no outstanding mortgage balance can secure access to an open line of credit, which unlike a traditional HELOC cannot be reduced if home values should fall. Retirees then can take periodic withdrawals as needed either to offset the effects of inflation or losses in their retirement portfolio in a market sell-off.

Many chuckle at preppers or survivalists who prepare for a worst-case scenario; that is until a crisis hits. With today’s uncertain economy and the stock market poised for a reset, a reverse mortgage is truly a ‘loan of prudence’. Perhaps prepping for an economic crisis is the prudent course of action. Perhaps the days of treating a reverse mortgage as a ‘loan of last resort’ may no longer be in vogue. Even in a best-case scenario, those who’ve secured a portion of their home’s value stand to have financial flexibility stand prepared should hard times come.

What are your thoughts on using a reverse mortgage to prepare for an economic crisis and inflation? Share your comments below. [/read]

Inflation, The Silent Killer!

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Premier Reverse Closings

By Robert Intelisano, CLU, CSA, LUTF

The Google definition of inflation is: “A general increase in prices and fall in the purchasing value of money over time.  Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages.  A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product.”

An example of inflation is the cost to cross the Marine Parkway-Gil Hodges Memorial Bridge.  When the bridge opened on July 3rd, 1937, the cost to cross the bridge was between 10-15 cents, depending on the type of vehicle.  The current cost is $5.09 by mail and $2.45 by E-Z Pass.

The Federal Reserve wants to keep inflation under the 2% benchmark.  Right now, inflation is running around 3% which is in the danger zone.  As per Barron’s, the FOMC (Federal Open Market Committee) released minutes from its June monetary policy meeting.  Fed officials signaled that interest rates would rise sooner and faster than Wall Street expected prior to the meeting, as inflation is rising at its fastest pace since 2008.

What does this all mean?  This means that if you are on a fixed income, your money will not go as far as it would during inflationary times.  This also means, if you have investments and/or money in the bank that is “netting after-tax” less than 3%, you are losing money (purchasing power).  These are important barometers that few people are paying attention to right now.

People have been cooped up (myself included) during the height of Covid-19 and many persons now have more spendable income.   A combination of inflation, the Suez Canal blockage, and higher demand for travel has skyrocketed travel costs in the past month.  Hotel costs in Miami Beach have risen 50% since the last week in June.  Rental cars are up 110% this year and are 70% higher since the pre-pandemic in 2019.  Oil prices could soon hit $100/barrel, which will also spike gas prices.

There are options where one can position assets to fight inflation or at least break even, as interest rates are likely to rise over the next 12-18 months.

-Shannon Hicks-

Now is the time to have a short conversation with potential borrowers about inflation. How is it impacting them? Does it change their retirement plans? What financial concerns do they have as a result? Inflation is not a selling point, but it’s certainly a reality. One where a reverse mortgage could potentially help.

When stimulus is not enough


“I lost my job during the pandemic. Now I have $40,000 in credit card debt”. Similar tales of economic devastation as a result of the Covid-19 pandemic are not limited to younger working Americans. In fact, many older workers who were preparing for retirement now find themselves saddled with much more debt than they had one year ago. Some tapped into their retirement savings without penalty thanks to special emergency provisions of the coronavirus CARES Act.  The true impact of the pandemic on those approaching retirement remains to be seen. [read more]

Unemployment checks and stimulus payments only went so far in mitigating a job loss, a reduction of hours, or the increased cost of living as inflation continues to surge. As a result many may consider postponing retirement or working a side-hustle to bring in a bit of extra income each month. The Wall Street Journal reports, “The Labor Department reported Tuesday that its consumer-price index increased 5.4% in June from a year earlier. Excluding volatile food and energy categories, prices rose 4.5% from a year earlier, the most in 30 years.” Older homeowners feeling the squeeze of inflation or cut in income have several choices. Cut expenses, work longer, get a part-time job, start taking Social Security benefits earlier or later, or perhaps looking to their home’s value.

Options are your best asset when facing a financial challenge. While every older homeowner may not need to seriously consider getting a reverse mortgage, millions should but never do either from a sheer lack of awareness or fear having been told by friends or the media to avoid the loan altogether. Such prejudices preemptively eliminate a strategy when practical solutions are needed most. With this in mind we should discuss what options the homeowner has considered so far and why they have not chosen them.

Here are several alternatives to a reverse mortgage that may be considered and their benefits and liabilities.

First, refinancing into a lower interest rate. While this may lower the monthly principal and interest payment a couple hundred dollars each month- many are restarting their amortization and in effect will be saddled with required payments for decades.

Then there’s the cash-out refi. While this certainly borrowing at a low interest rate the homeowner’s monthly payments may actually increase with a higher starting principal loan balance.

Others may contemplate selling and downsizing to reduce monthly expenses but few do preferring to stay put . Getting a HELOC or home equity line of credit sounds appealing but there’s still a required monthly payment and payments will increase after the initial draw period expires.

Most of the so-called alternatives to reverse mortgages presented in the press are short-term solutions for a long term problem. In other words, they focus on the immediate need often ignoring the enduring need to meet their monthly cash flow challenges.

All things considered, despite short-term unemployment bonuses, mortgage forbearance, and stimulus checks millions of older Americans are in need of a long-term solution and strategy that helps meet their needs for decades to come- not one that gives them a cash infusion and new debt that further strains their cash flow. [/read]

 

Is There a Looming Inflation Spike?

While economic stimulus measures stopped further economic damage in the early days of the pandemic it certainly comes at a cost. That cost is inflation should there be too many dollars chasing American goods and services. However, almost as if defying economic gravity  U.S. inflation remains below its two-percent target. Certainly, there was a noticeable spike in food prices early this spring…

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