Boosting your income for retirement can be accomplished through savings and investments before you retire, continuing to work full-time or part-time for a few extra years and carefully determining the optimal time for applying for Social Security benefits.

Reverse mortgage for added income

Another option for seniors who are homeowners is to increase your cash flow with a reverse mortgage. A reverse mortgage, available only to seniors age 62 and older, allows you to use the equity in your home to pay off your current mortgage, pay other debt or simply have an available source of funds for an emergency. The amount you can borrow depends on your age and the amount of equity in your home. Consultation with a HUD-approved mortgage counselor is mandatory for all reverse mortgage applicants, so you can discuss how a reverse mortgage might fit into your financial plan for retirement.

Tackling the spending side of your financial equation is equally important. Reducing your spending in some areas can make it easier to spend on the activities you enjoy most during your retirement.

Eight budgeting tips

1. Negotiate fees for auto care. If you have to get your car repaired or pay for routine maintenance, ask for a senior citizen discount or see if you can negotiate a payment plan.
2. Use your AAA or AARP membership for discounts. Some people are shy about using their memberships for discounts, but these days, everyone is budget-conscious and trying to save in every possible way. You can save 10 percent or sometimes more on travel discounts, movies and more through these memberships that you may already have.
3. Check on your insurance rates annually. Bundling your home and auto insurance can earn you a discount, but you should ask about other possible discounts for things like an alarm system or even belonging to an alumni group. An insurance agent could help you save hundreds yet continue to have adequate protection.
4. Leave your credit cards at home. Studies show that people spend more money when they use a credit card. If you carry a balance from one month to the next, you are wasting your money by paying interest on the debt to the credit card company.
5. Create your own debt reduction plan. If you have credit card debt, you need to tackle it as soon as possible. Make a list of your debts and the interest rates on each one. Then apply every available dollar to paying off the debt with the highest interest rate while paying just the minimum on your other bills. As soon as one has been repaid you can apply the extra money to the next debt until they are all repaid. Those last few debts should be paid more quickly since you will have more money to apply to them.
6. Compare utility companies. Check out the competition for your phone, gas, electricity, water and cable companies to see if you can save on your current rates.
7. Consider selling your car. While you may be accustomed to each family member having a car, it may be possible to share a car and eliminate the car payment, gas and insurance payment for that extra vehicle.
8. Consider downsizing. Depending on where you live, you may want to think about selling your home and moving to a smaller or less expensive home. You can take out a reverse mortgage as part of the purchase of your new home so you can access your home equity.

While no one likes reducing their spending, taking a hard look at where your money goes can be a valuable exercise that will result in having more cash for the things you love to do.

To start in February HUD endorsed 6,904 standard reverse mortgages. This is down 1.7 percent from last year, just about a rounding error and not evidence of a trend.

As to the HECM Saver, there were 296 such loans endorsed by HUD versus 165 in January. That’s an increase of 79.4 percent.

The catch, of course, is that it’s possible to have huge percentage increases when you’re dealing with small numbers.

Another way to view the Saver product is to say that in February there were a total of 7,200 reverse mortgage originations. Of these, 4.11 percent were Saver HECMs.

There are, I suspect, several parts to the Saver mystery.

First, reverse mortgages in general continue to suffer from adverse media coverage. When the New York Times asked readers to report your reverse mortgage experience the comments were largely negative. This is not a criticism of the Times, rather it is to point out that the public view of reverse mortgages is hardly one of elation.

Second, many complain about reverse mortgage fees without, apparently, realizing that at least the Saver program substantially reduces up-front costs.

Third, when there is an abusive situation involving a senior citizen and reverse mortgages generally the news is never good. There is simply nothing redemptive about such cases, even if they represent a small number of incidents.

Fourth, it is difficult to think in terms of an equity-based loan when equity has generally fallen across the country.

Fifth, the idea of people with reverse mortgages being subject to foreclosure is hard to understand given that reverse mortgages do not require monthly payments for principal or interest.

What can you do to see if a reverse mortgage is right for you?

As a start it ought to be understood that reverse mortgages work for some borrowers — but not for others.

Prospective borrowers need counseling which shows how reverse mortgages fit within an overall financial and estate plan — including pros and cons. This means sitting down with a fee-only financial planner or an attorney who specializes in elder law to get independent information.

It pays to shop around. Compare rates and fees. It’s time well spent.

Lastly, a home is typically the largest asset most of us hold. In addition to speaking with financial professionals, speak with adult children and ask for their views. Ask them plainly, if not a reverse mortgage then what alternative makes sense in your situation?

1. Take a comprehensive look at your entire financial situation before making any big decisions. That means scrutinizing your budget to see where you may be able to change spending habits to keep more of your income. You can get help with this from a financial planner who specializes in retirement issues.
2. Set up an appointment with a reverse mortgage counselor if you want to convert home equity to cash. The majority of reverse mortgages in the U.S. are through the Home Equity Conversion Mortgage (HECM) program, so counseling from an agency approved by the Department of Housing and Urban Development (HUD) is required. The counselors must pass an HECM exam approved by HUD.
3. Make sure you’ve exhausted all other alternatives to borrowing money. There may be programs in your community aimed at helping senior citizens with housing costs, food, home repairs and other services. Ask around at your local center on aging, community centers, churches and other organizations.
4. Decide ahead of time what reverse mortgage proceeds will be used for. Many retirees use the money to pay for property taxes, medical care, prescriptions and home repairs, among other things. There aren’t too many restrictions on what the money can be used for, and you can even purchase another home to live in as long as it will be your principal residence.

Reverse mortgage guidelines

Get all the facts about reverse mortgage guidelines before filling out an application. Too many people have made the mistake of thinking a reverse loan would solve all their problems without really investigating whether or not borrowing money was right for their situation.

Using reverse mortgages

Reverse mortgages allow people aged 62 and up to convert some home equity into cash. The money can be taken as a lump sum, through installments, or as a line of credit. Reverse loans are designed to help senior citizens supplement their income, but some borrowers may still find themselves accumulating even more debt above and beyond reverse loans.

What about foreclosure?

Filing for bankruptcy doesn’t automatically mean that you’ll lose your house through foreclosure if you have a reverse mortgage. But the property is an asset, and might be liquidated in a Chapter 7 filing to help pay off debt. According to David M. Siegel, an Illinois bankruptcy attorney, “A trustee in a Chapter 7 bankruptcy case can liquidate real estate secured by a reverse mortgage if there is available equity above and beyond what a debtor can protect as exempt.”

Repaying a reverse loan

Generally, a Chapter 13 bankruptcy filing involves setting up some type of repayment plan for debt. Reverse mortgage debt may be structured so that interest and monthly payments are more affordable. Under the United States Bankruptcy Code repayment plans can last up to five years, so if reverse mortgage debt is involved it would have to be paid off in that time. Obviously, it can get quite complicated trying to work out a repayment plan for a senior who is on a fixed income. Consult with a qualified bankruptcy attorney who can guide you through the process.

1. Who pays back the loan after you die? For the most part, reverse mortgage heirs have not been liable for paying back the loan. The loan usually gets paid when the mortgage lender sells it, and any remaining equity goes to heirs. But recently, AARP flied a lawsuit against the Department of Housing and Urban Development over changes to the HECM program that has led to reverse mortgage heirs facing eviction and foreclosure if they don’t repay reverse loans, even if the payoff is higher than their home’s value.
2. What do you plan to do with all that money? If you are of sound mind and can make your own financial decisions, that really isn’t anyone else’s’ business. However, if you rely on your kids for some financial support or other types of assistance, it seems like a legitimate question for them to ask.
3. Where are you getting your information about reverse loans? It may make sense to have your son or daughter attend the mandatory reverse mortgage counseling session. The counselor will review reverse mortgage guidelines and give you alternatives to borrowing money, such as programs that may be available in your community.

Reverse mortgage discussion

Some older homeowners have had success with reverse loans, while others find that borrowing money is not the right choice. It’s never a bad idea to discuss major financial decisions with trusted heirs who can help you make the right choice. But in the end whether or not to apply for a reverse mortgage should be about helping your financial situation, not making other people happy.

Reverse mortgage heirs and eviction

The suit was filed by AARP Litigation Foundation and law firm Mehri and Skalet PLLC on behalf of three plaintiffs. The plaintiffs are surviving spouses who who say that changes in the reverse loan program allow reverse mortgage lenders to inititate foreclosure and eviction proceedings against them.

According to a statement from AARP:

The case will have broad national implications, because the outcome will determine whether spouses will be able to stay in homes that are now “underwater” as a result of the housing downturn, a possibility that reverse mortgage borrowers have always paid insurance premiums to protect against.

Paying off reverse loans

Prior to 2008 HUD rules stated that borrowers and their heirs would never owe more than a home was worth when repaying a reverse loan. But changes in the rules that year stated that reverse mortgage heirs, including surviving spouses, must pay the full balance of the mortgage in order to keep the home, even if that amount exceeds the value of the property.

Hurting senior citizens

“Rather than protecting borrowers, HUD retroactively changed the terms of the loans to make these elderly borrowers’ spouses and heirs pay more to keep their home than an unrelated purchaser would have to pay to purchase the property,” Steven A. Skalet, of Mehri & Skalet PLLC said in a statement. “This is shameful and we intend to make HUD honor the representations and promises they made to borrowers when they signed up for these government-insured loans.”

The House Financial Services Committee has already votes to pass H.R. 830, The FHA Refinance Program Termination Act and H.R. 836, the Emergency Mortgage Relief Program Termination Act.

The first bill gets rid of HUD’s short-refi program. This is not a big deal as only 44 FHA loans have been originated under this concept.

The second bill, H.R. 836, provides temporary help for people who typically have lost their jobs. As the Committee explains:

“The Emergency Homeowner Relief Program provides loans to unemployed borrowers for a period of 12 months, with a possible 12 month extension. These loans increase the amount of the borrower’s indebtedness, so a borrower who is unable to pay back either the original amount of principal or the additional loans made under the program will be worse off in the long run. Those borrowers derive no benefit from the program, and the government will suffer losses from their eventual defaults.

“The Obama Administration, in its FY 2012 budget proposal, estimates the program to have an almost 98 percent subsidy rate. This means for every $1 spent, the government will lose 98 cents. Also, HUD regulations set up a process where the bridge loan can be forgiven over a five-year period. This is not a loan program, but another government grant program.”

The idea that emergency help for unemployed borrowers makes them “worse off” is nonsense. What it really means is that while someone is looking for a job they do not lose their home. It’s just a guess, but such individuals are probably elated to have government help.

Reverse Mortgages

The oddity of these actions is that the first one is financially unimpressive while the second is simply abusive; it kicks people who are already down. Given such thinking, you have to wonder when the clever cost-cutters on Capitol Hill will turn their attention to reverse mortgages pros and cons.

The FHA Home Equity Conversion Program (HECM) dominates the reverse mortgage marketplace. Few lenders in the private sector want to fool with such loans — the Bank of America and Wells Fargo have recently left the business. Moreover, the reverse mortgage effort has been plagued with problems: Some 13,000 HECMs were in default without HUD’s knowledge last year — another 7,000 they knew about.

It would be a surprise if some enterprising elected official did not seek to end the HUD reverse loan effort or to press for foreclosures for those who have not paid their property taxes and insurance. You can just see the proud headline: “Deficit Reduced As More Elderly Forced To Live in Parks.”

Paying for retirement

Whether you have a lot of education or not, paying for retirement can be challenging. On average, people with more education earn more money over the course of a lifetime and may have more opportunities to build a retirement savings than people with lower wages. But as the economic crisis has shown, having a higher income doesn’t always translate into good fiscal habits. So it’s likely that senior homeowners of all income and educational levels will find themselves considering reverse mortgages if they continue to struggle financially.

Overall, the participation of people aged 55 and up in the workforce was at 40.2 percent in 2010, the highest recorded level since 1975. Many senior citizens believe that they must continue working as long as they are physically able in order to pay for all their expenses. If you are nearing retirement age it may make sense to stay at your job if you can. Doing so could allow you to save more money and enjoy a more secure retirement.

Reverse mortgages during retirement

If working longer is not an option, there are some alternatives you can consider, such as reverse mortgages. There are pros and cons to reverse mortgages so take time to learn as much as you can about them. To apply for a Home Equity Conversion Mortgage (HECM) you must meet with a reverse loan counselor who can review reverse mortgage guidelines.

Funding HECMs

Among the changes that have occurred is an absence of funding by Fannie Mae. The agency purchased most Home Equity Conversion Mortgages (HECMs) until 2006. After the mortgage market collapsed the costs jumped and by 2010 Fannie Mae said it would stop purchasing reverse loans.

Now, mortgage-backed securities purchased by Ginnie Mae, an arm of the Department of Housing and Urban Development (HUD), have become the primary way HECMs are funded. Most Ginnie Mae reverse mortgages have fixed interest rates and require borrowers to withdraw the full loan limit at closing. Those loans may be more expensive for homeowners who don’t really need the full amount at closing since the interest rates are higher and interest begins to accumulate right after closing.

Reverse mortgage age declines

Another change in the market is that the average age of borrowers applying for reverse mortgages has declined. The average borrower age fell to 72.9 years in 2010 from 76.7 years in 1990. The report says the declining age of borrowers is worrisome because of the possible impact on long-term financial security. Also, borrowers were more likely to be part of a couple than single, with 37 percent of reverse loans going to couples in 2010, compared with 26.1 percent in 1990.

Reverse mortgage guidelines

Not all seniors should apply for reverse mortgages, but a housing counselor can help you determine if a loan is right for you. A reverse loan counselor can review the most current reverse mortgage guidelines and other programs that might be help you with financial planning.

Living on a small income

“It shouldn’t be surprising that there’s real palpable fear out there because seniors are suffering,” Douglas Johnston, legislative director for AARP-NJ, said in an article at NJ.com. “I frankly don’t know how they do it. The median amount Social Security recipients get per year is $10,400. How do you live on $10,400 anywhere, especially an expensive state like New Jersey?”

Can a reverse loan help?

The survey also found that 84 percent of people said they would prefer to receive long-term care at home or in an assisted-living facility, rather than at a nursing home. Whether you remain at home or move to an assisted-living facility, you’ll need enough cash to last through your golden years. If you live in a high-cost state like New Jersey, you may be wondering if a reverse loan can help supplement your retirement income.

Reverse mortgage guidelines

A reverse mortgage could allow you to convert some home equity into cash. You must be at least 62 years old and own a home. You might qualify for a reverse loan even if you’re still paying off a mortgage loan. A reverse mortgage counselor can discuss all the reverse mortgage guidelines and help determine if borrowing money is prudent.