With the challenges of saving for retirement growing, some elderly end up being house rich and cash poor, with more equity locked up in their homes than available in liquid assets. Finance of America Vice President of Retirement Strategies Steve Resch joins the On the Move panel with Yahoo Finance to discuss potential alternative options.
Steve explains that a reverse mortgage is an opportunity to bring home equity into your retirement planning. There were some reputation issues in the past, but this is not the reverse mortgage of the past. There are new features and safeguards built into the program to make it an ideal tool to be able to incorporate that home equity into the retirement process. We are looking at seniors that have about seven trillion dollars in home equity, and we are looking to fund a thirty-year or longer retirement period successfully. It makes sense to bring in home equity into the planning structure responsibly.
FAR strives to educate borrowers as to what their responsibilities are. This is a mortgage like any other mortgage, but we do not pay the property taxes or insurance, you are always still responsible for doing that unless you decide to do the LESA program that FAR provides.
To mitigate potential issues, you must qualify for these loans by demonstrating credit responsibility, and that you have enough income to pay your taxes and insurance, and ongoing maintenance of the property. Another important point is that counseling is required through a HUD-approved third-party agency to get a reverse mortgage. The counselor reserves the right to withhold a counseling certificate if they don’t think you understand the program.
As long as you live in the home as your primary residence, you do not have to pay back the loan. If you move out of the home for more than a year, then you are considered permanently moved out, and you have to start a repayment process. If you have a spouse, then they can continue to live in the home if you are on the loan together.
Regarding how much equity you can pull out of your home, on the FHA-insured program, the national lending limit will move up to $765,600 in January 2020. Proprietary reverse mortgages offered by FAR have loan amounts up to $3 million. This is a program the FAR spearheaded, and it’s available primarily on the coastal areas such as southern California and Florida. We have also been approved in New York state and Massachusetts.