Like most financial options, a reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), may not be right for everyone or every situation. However, for many seniors facing financial challenges during retirement, a reverse mortgage has proven to be an effective solution.
For those with sufficient equity, a reverse mortgage remains one of the best refinancing options for seniors with an existing mortgage. With a reverse mortgage, borrowers have a choice: they aren’t required to make monthly mortgage payments (only continue paying their property taxes, insurance and maintenance). However, they may continue making payments and pay off the mortgage. This feature provides seniors the financial flexibility to navigate through their retirement years with confidence.
Not surprisingly, many people continue to carry debt, sometimes at high interest rates, into their retirement years. If payments are missed, they may be subjected to rising credit card interest rates. By using a HECM to consolidate debt and eliminate associated monthly payments, seniors may realize these additional debt consolidation benefits:
• Repayment flexibility
• Immediate cash flow relief
• Lower interest rate than most credit cards
A homebuyer that is 62 years of age or older should consider a reverse mortgage to purchase a home as an alternative to traditional financing. With optional monthly mortgage payments, seniors may stop making mortgage payments (as long as they continue paying their property taxes, insurance and home maintenance) if funds are needed for other expenses, providing them greater flexibility.
Utilizing reverse mortgages as a financial planning tool can be a highly effective strategy. Here are some of the ways reverse mortgages are being used today by a growing number of financial professionals:
• Maximizing Social Security benefits by delaying early draw-downs.
• Maximizing 401(k) contributions, employer contributions, and catch-up contributions.
• Reallocating assets by strategically maintaining financial diversification.
• Leveraging assets to fund long-term care policies, maintain life insurance policies, and invest in income-producing instruments.
• Estate planning by funding special needs trusts, gifts and endowments, and generational transfers.
For most retired Americans, their largest “nest egg” is their home. Unfortunately, the equity in that asset is often trapped and does not contribute to much needed monthly cash flow. A reverse mortgage allows homeowners 62 or older to tap into their hard-earned home equity by converting a part of that equity to cash. Loan proceeds can be drawn in lump sums, received monthly, or via a growing line of credit.
It’s a fact: seniors and baby boomers are living longer, and many have not adequately planned for retirement. A reverse mortgage line of credit can provide a critical layer of protection. This option does not require an annual renewal, and grows over time — funds are available when seniors need them most.
Many baby boomers and seniors have lived in their homes for years and are still living with outdated appliances, worn carpet, and non-energy-efficient HVAC systems or windows. Tapping into home equity with a reverse mortgage may be the most efficient way to pay for major maintenance issues, to finance a much needed remodeling project, or begin renovations to accommodate the onset of physical limitations.