Today’s reverse mortgage can provide greater options and flexibility to your retirement plan. These home equity loans were once viewed as a last resort for people age 62 and older to stay in their homes, but things have changed now that the retirement community is sitting on record levels of home equity, while balancing retirement income needs.
Mitigate sequence of returns risk
When used as a smart retirement planning tool, the reverse mortgage can be used to coordinate spending from your portfolio. In the event of a major market downturn, savvy retirees are accessing their home equity instead of depleting their portfolio accounts when stocks are down. Market fluctuations and unpredictability can cause the biggest risk for running out of money in retirement. This is called sequence of returns risk. You can read more about using home equity to avoid sequence of returns risk in the article How to Mitigate Sequence of Returns Risk in Retirement.
Increase retirement income
The amount you receive each month from Social Security depends on your age when you start receiving payments. You can start receiving payments at age 62, but the monthly payments increase by 8% for each you delay claiming benefits up to age 67 (considered the full retirement age). By using a reverse mortgage as part of a retirement plan, some borrowers can hold off on claiming social security for a higher payout.
For retirees that are still paying off a mortgage loan, a reverse mortgage can be used to pay off their existing loans and increase their cash flow.
Insurance policy
Raising healthcare costs can be an unpredictable expense in retirement. Some people plan and buy long-term care insurance, but the option is typically very expensive. For this reason, many retirees are turning to a reverse mortgage as a less expensive financial safety net. This is especially true given that most baby boomers are retiring without a pension from their career.
Reverse mortgage basics
Qualifying for a reverse mortgage is straight-forward. To qualify, you must be 62 years or older, you must live in your home as the primary residence, and you must have enough equity built-up in the home to draw a loan from. You don’t need to own the home either, you may still be eligible for a reverse mortgage if you still have an existing mortgage on the home.
To apply for a reverse mortgage, you must sit through a mandatory counselling session and go through a credit application. Once you secure a reverse mortgage, you are still responsible for paying property taxes, home owners’ insurance, and home maintenance costs.
The amount that you can borrow with a reverse mortgage depends on how much equity you have built up in your home and current interest rates. Your age is also a factor, the older you are the more you will be able to borrow along with several other variable such as if you are married, and if your spouse is younger than you. With a standard home equity conversion mortgage (HECM) you can borrow a maximum of $726,525, however there are proprietary jumbo reverse mortgage options that allow foor larger loans. For example, our proprietary suite of HomeSafe reverse mortgage products, including standard and jumbo reverse mortgage loans, can provide loan amounts up to $4 million.
FAR follows the same Financial Assessment qualifications as the FHA HECM product. The HomeSafe is a non-recourse loan and the borrower or their heirs have no personal liability for repayment of the loan and can never owe more than the loan amount or appraised value, whichever is lower. There are no prepayment penalties, however on the fixed rate HomeSafe a borrower cannot redraw prepaid funds.
Whether you are looking to offset market downturns, planning ahead for long-term healthcare costs, or looking to increase your retirement income, a reverse mortgage might be a key financial tool for planning your retirement. With any financial decision, it is important to carefully consider your options. The right financial advisor can guide you to a great decision that works with your financial goals.
Oregon Only:·When the loan is due and payable, some or all of the equity in the property that is the subject of the reverse mortgage no longer belongs to borrowers, who may need to sell the home or otherwise repay the loan with interest from other proceeds. FAR may charge an origination fee, mortgage insurance premium, closing costs and servicing fees (added to the balance of the loan).·The balance of the loan grows over time and FAR charges interest on the balance.· Borrowers are responsible for paying property taxes, homeowner’s insurance, maintenance, and related taxes (which may be substantial). We do not establish an escrow account for disbursements of these payments. A set-aside account can be set up to pay taxes and insurance and may be required in some cases. Borrowers must occupy home as their primary residence and pay for ongoing maintenance; otherwise the loan becomes due and payable. The loan also becomes due and payable (and the property may be subject to a tax lien, other encumbrance, or foreclosure) when the last borrower, or eligible non-borrowing surviving spouse, dies, sells the home, permanently moves out, defaults on taxes, insurance payments, or maintenance, or does not otherwise comply with the loan terms. Interest is not tax-deductible until the loan is partially or fully repaid.
©2019 Finance of America Reverse LLC is licensed in 50 states and D.C. | Equal Housing Opportunity | NMLS ID # 2285 | www.nmls.consumeraccess.org | 8023 East 63rd Place, Suite 700 | Tulsa, OK 74133 CNot all products and options are available in all states | Terms subject to change without notice | AZ Mortgage Banker License #0921300 | Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act | Georgia Residential Mortgage Licensee | Illinois Residential Mortgage Licensee | Kansas Licensed Mortgage Company | MA Lender/Broker #MC2855 | Licensed by the Mississippi Department of Banking and Consumer Finance | Licensed by the New Hampshire Banking Department | Licensed by the N.J. Department of Banking and Insurance | Licensed Mortgage Banker — NYS Banking Department where Finance of America Reverse is known as FAReverse LLC in lieu of true name Finance of America Reverse LLC | Rhode Island Licensed Lender | HUD HECMS REQUIRE PAYMENT OF INITIAL AND PERIODIC MORTGAGE INSURANCE PREMIUM.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
I WANT TO KEEP UP TO DATE ON RETIREMENT TRENDS
Follow Us.