Reverse mortgages a flexible, safe option for seniors
For most Americans, their home is their largest asset. In fact, seniors are sitting on more than $6.6 trillion of unused home equity.
Today there are more options for utilizing that equity than in the past and one of those options is the Home Equity Conversion Mortgage (HECM) or reverse mortgage as its also known. The basics of a reverse mortgage conceptually are simple. A HECM uses a homeowner’s equity as a guarantee to secure a loan to pay off any existing liens, thus eliminating monthly mortgage payments. If there’s additional equity available, the borrower can withdraw funds in a number of ways. The homeowner always retains full ownership of the home and the new loan doesn’t need to be repaid until the borrower (or non-borrowing spouse) stops living in the home, the home is sold, or the borrower(s) pass.
More than a million homeowners have already incorporated a reverse mortgage loan into their retirement plans and that number continues to grow because of the flexibility, control and peace of mind it provides.
“There was a time when reverse mortgages were considered to be for people with no other options,” said Chad Vogel, branch manager at Minot’s Primary Residential Mortgage, Inc., who will be speaking on the topic at the 2nd Annual Minot Daily News Senior Expo on Sept. 17. “Today financial planners are starting to recognize that a reverse mortgage can be a tool in financial planning and for retirement planning.”
Reverse mortgages have evolved since they were initiated in 1988, with regulations helping make them safer, less expensive – and more appealing to consumers. To qualify for a HECM, the borrower must be 62 years or older, the home must be the borrower’s primary residence and the borrower must own the home and meet the financial requirements of the HECM program. Loan amount is based on age – the older the borrower, the more funds may be available. Typically the available loan amount is between 45%-70% of the appraised value based upon the age of the youngest borrower.
Five advantages of reverse mortgages are that there are no monthly mortgage payments, loan proceeds are tax-free, you remain the owner of your home, the loan is insured by the federal government, and a HECM is a non-recourse loan, which means you will never owe more than your home is worth. Importantly, a HECM does not affect your Social Security, Medicare or pension benefits.
“A HECM allows the borrower to access loan funds in flexible ways,” Vogel said. These include a lump sum payment, monthly installments, a growing line of credit or a combination of all three. It all depends on the wants and needs of the recipient. The loan can be used in a variety of ways such as paying off your existing mortgage, making your retirement savings last longer, build a safety net, supplement your retirement income, support your aging-in-place expenses (like caregiving and home modifications) or even buy a home that better suits your needs.
Even though the vast majority of the Baby Boomers now retiring, facing retirement or having retired are homeowners, one-third of Americans overall report that have no retirement savings, indicating that reverse mortgages are likely to see a further increase in popularity among seniors.