retirement Archives - Page 2 of 18

The Problem with Being House-Rich

There are some big problems of being house-rich that most homeowners are unaware of. Here they are…

How a HECM could save uninsured homeowners from disaster

The casino is a suitable place to roll the dice and take your chances- win or lose. However, gambling with the security of your largest asset and risking the roof over your head is not.

Survey reveals more homeowners are uninsured

The Insurance Information Institute reports that 5% more homeowners have not purchased homeowners insurance than just two years ago. That’s not surprising considering skyrocketing premiums in several states, most notably California and Florida.

Are most of these homeowners well off with substantial assets to self-insure their homes? Not necessarily. The Institute’s survey showed that half of those who chose to forego insurance on their home have an annual income below $40,000. While wealthy individuals may have the ability to self-insure, most Americans pool their risk with an insurance company that has the financial capacity to absorb the expense of repairing or rebuilding a home.

A risky gamble

As we know, if you have a mortgage on your home you are required to carry a homeowners insurance policy. The lender must protect the collateral that secures the loan. In a recent column in TheMessenger.com David Stevens, a former head of the Federal Housing Administration and the Mortgage Bankers Association said the Insurance Information Institute ‘survey suggests many of these homeowners may be retirees with a paid-off home who are living on a fixed income.

The role of inflation

Inflation is…

How a HECM can save the home

How could a reverse mortgage literally help save the home these at-risk individuals live in? Let’s do the math. Let’s say a couple has a home worth $300,000 that’s been fully paid off but they cannot afford homeowners insurance. Should they lose their home to a natural disaster or fire they could easily find themselves homeless not having the money to rebuild. However, utilizing a reverse mortgage this couple could take out an annual withdrawal from a Home Equity Conversion Mortgage’s available credit line (or principal limit) to pay the annual premiums.

This strategy would give them peace of mind and most importantly protect them from becoming permanently unhoused. Of course, the reverse mortgage’s initial closing costs, FHA insurance premiums, and accrued interest would add to the loan’s balance but they’ve succeeded in protecting what is likely their largest asset and may help ensure the home remains for their heirs to inherit.

“At lower income levels, homeowners’ insurance may be perceived as a discretionary purchase,” the Insurance Information Institute said in a report about its survey. “Weather does not discriminate by income, and low-income homeowners remain at risk… Logic would suggest that only a small proportion of low-income homeowners could withstand the total loss of their home from an unforeseen weather event without insurance coverage”, said Robert Dietz, chief economist at the National Association of Home Builders.

Conclusion

If you originate reverse mortgages in Florida, California, or any state where homeowners insurance premiums have skyrocketed you may want to consider marketing to this at-risk group. After all, a reverse mortgage could literally save the roof over their head.

Resources:
More Homeowners ‘Go Bare’ As Property Insurance Gets Pricier and Harder to Get Pricier and Harder to Find