TAKING ANOTHER LOOK AT REVERSE MORTGAGES

Of all the concerns impacting Americans’ retirement today, running out of money, maintaining their lifestyle and rising healthcare expenses continue to top the list, according to a financial  planning survey published recently by the American Institute of CPAs.

Nearly half (48%) of people surveyed have expressed concerns about outliving their money. When asked about the top three sources of financial and emotional stress concerning outliving their money, healthcare costs (77 %), market fluctuations (53%) and unexpected costs (50%) were cited as the top issues. Additional causes for financial stress include lifestyle expenses (42%), the possibility of being a financial burden on their relatives (22%) and the desire to leave an inheritance for their children (21%).

  

For so many people, their biggest asset is their home and that asset factors into their retirement planning.  Yet many are reluctant to cash in on the equity in their home by selling it.  Not everyone wants to retire to Florida, some may prefer to stay in their home.  For these people, it may be appropriate to take another look at reverse mortgages. A lot has happened over the last 30 years since these loans have been introduced. These government -insured loans have been updated to become safer, and more flexible.

A reverse mortgage is a loan secured by the equity in your home.  There are no monthly mortgage payments, in fact you will receive payment from the lending organization either monthly or as a line of credit for unplanned emergencies, expenditures for home repairs, health care or to support your “aging-in-place” including care-giving and home modifications.  Your costs will continue to include property taxes, homeowners insurance and property maintenance. 

With a reverse mortgage (also known as a HECM – Home Equity Conversion Mortgage), you are not required to make monthly payments, your loan proceeds are tax-free, you remain the owner of your home, the loan is insured by the federal government and the loan is a non-recourse loan, which means you will never owe more than your home is worth.

What’s the catch, there really isn’t any – you just have to make the transition to the fact that, the HECM lender acquires an interest in your home. 

This may make sense for you, if you are looking for a way to stay in your home and supplement your retirement income with the equity in your home.   if you think this may be a possible retirement tool,  be sure you get advice from your financial planner and your attorney, and research the different  lenders and terms, before you make a move.  

  

Sources:

Personal Financial Planning Trends Survey,  American Institute of CPAs (AICPA), February 14, 2019;

Understanding Reverse Mortgage Loans, Your Guide to a Better Retirement, AAG, 2019.