Today, reverse mortgages are being utilized as a mainstream and proven financial planning tool. A growing number of financial professionals are including reverse mortgages in their portfolio of effective financial planning tools to help their clients:
• Maximize Social Security Benefits – Using reverse mortgage loan proceeds to delay or repay early Social Security draw-downs allow seniors to capture the increased lifetime benefits available if Social Security draw-downs are delayed until age 70. Reverse mortgages have been used as a “financial bridge” to help seniors financially until they reach this milestone for increased lifetime benefits.
• Leverage 401(k) Options – Reverse mortgage loan proceeds can be used to create non-taxable cash flow to offset income directed to 401(k) programs. Using this strategy, clients get the continued benefits of their employer’s contribution or can reach the maximum allowable catch-up contribution.
• Reallocating Assets – Reverse mortgage loan proceeds may help seniors to maintain financial diversification. This strategy allows senior clients the financial flexibility to retain assets that are generating income and avoid having to liquidate them at inopportune times. Reverse mortgages have been used in place of liquidating stock portfolios or real estate holdings during times of unfavorable market conditions.
• Providing Financing Options – The fact that reverse mortgages are non-recourse and don’t require the borrower to pay monthly mortgage payments (other than property taxes, insurance and maintenance) make it the financing vehicle of choice for large purchases. While reverse mortgages do not require a monthly mortgage payment, payments can be made, in whole or in part, without restrictions or penalty, at any time during the life of the mortgage. With some reverse mortgages, monies paid to reduce a balance can be drawn back out, making it work like a revolving line of credit. And, with a reverse mortgage, fees are only paid once and not annually.
• Leveraging Assets – With a reverse mortgage, seniors have used the equity in their homes to fund long-term care policies, maintain life insurance policies, and invest in income-producing instruments.
• Estate Planning – Seniors have used reverse mortgage loan proceeds to fund estate planning objectives, including the creation of special needs trusts, making gifts and endowments, and generational transfers.