You Can Access Your Home's Equity
For many borrowers, this is the main reason a reverse mortgage is the right choice. Access to funds from one's home equity to pay bills and expenses during retirement or pay off other obligations can help immensely alleviate financial worry.
Reverse mortgages are a versatile financial tool that nearly a million homeowners have used to age in place and for other reasons. However, like any financial product, reverse mortgages should be considered carefully before deciding whether to obtain one. Take the NRMLA self-evaluation and have Mathius Marc Gertz, the reverse mortgage expert, personally call you and answer your questions.
Jeffrey wanted to make sure he would be able to maximize the income from his investment portfolio. He met with the wealth manager at his local bank and was concerned when they discussed what might happen if his stock-based portfolio should decline in a bear market.
Jake, his banker, put him in touch with me. We met at his home, and I showed Jeff how we might use reverse mortgage proceeds to balance his investment portfolio so that when the assets shrank, the reverse mortgage could provide monthly payments until his portfolio recovered. In this way, he wouldn’t have to liquidate principal when its value was at its lowest.
The Pragmatic Planner
Jeff was 62 and retiring after 30 years in civil service. He and his wife Molly had been working with a retirement planning specialist for the last seven years. Four years ago, Kim, their planner, had introduced them to me and we had discussed reverse mortgages as just another way to tap liquidity in an asset. Jeff had been concerned. He knew that he needed his maximum social security benefit to retire comfortably, but that wouldn’t be available till he was 69. What could he do for those seven years in between?
I designed a reverse mortgage program that gave him payments starting at age 62 to take the place of this maximum social security payments for 84 months until he was 69. Then he would start getting social security and the rest of the reverse mortgage funds would convert to an emergence line of credit account. The loan process went like clockwork because we had planned it well in advance and upon retirement, Jeff got his first check from his pension and from his reverse mortgage.
The Eager Retiree
Donald had been self-employed his entire life. A risk-taking serial entrepreneur, he had always believed in himself and invested all his money in his business ventures. Sometimes he was successful, sometimes not.
One of his successful investments was buying his home. He had cash when the real estate market collapsed and bought the rather large house on ten acres at a great price. In the decade since the value of his home skyrocketed. Now, he was finally ready to retire from business and spend his last decades pursuing his artistic passions.
However, Donald had held onto little other than his home when he was ready. He sold his last business, but he only netted one million. The house, on the other hand, was worth a lot.
His business attorney introduced us, and I showed Donald how we would access five million dollars in liquidity tax-free out of his home without payments. Using a proprietary reverse mortgage, this would give him a total of six million dollars to put under management to produce income and guarantee his artistic retirement. Problem solved.
The Safety-Net Seeker
Susan was a busy exec at a Fortune 500 company. Divorced and in her early 60s, she assessed her retirement plan with her advisor. She was ahead of the curve, having done well and having plenty of funds set aside for retirement. She looked forward to a comfortable retirement between her pension, self-directed 401K, and social security. However, her advisor Karen knew that the best-laid plans could go astray.
Karen wanted Susan to project what might happen financially if she had a serious long-term illness or some of her investments failed. In those scenarios, Susan’s expenses might quickly go up by hundreds of thousands of dollars annually for medicine and long-term care. Karen recommended looking into a long-term care policy and a reverse mortgage.
Karen called me, and I met with them. We discussed an increasing line of credit option. I explained that it could never be reduced or canceled like a HELOC and that the younger Susan was when she took it out, the more home liquidity she would have in the future if she needed to use the funds. The initial funds she received didn’t have to be any larger than the closing costs, so that the interest cost would be minimal. This strategy proved a great solution, and we put it into place just as Susan retired at age 62.
The New Homebuyer
Michelle was 69, widowed and disabled. When her husband Marvin died, he left their estate in a trust for her welfare administered by her cousin and attorney David. The information they had at the time determined that it would be best to sell the home she and Marvin had lived in together and downsize into a modest condominium. However, there wasn’t enough income for a mortgage payment, and if the estate paid cash for the condo, it wouldn’t leave enough money to create income for Michelle.
David discussed the situation with a professional fiduciary colleague with whom I had a trusted relationship. He introduced David and me and, together designed a program that would require Michelle only to use a fraction of the proceeds from the sale of the home, and the balance would be financed with a type of reverse mortgage. This was a HECM for purchase. In this way, hundreds of thousands of dollars could be kept under management to provide income, Michelle would be in a manageable space with lower expenses, and there would be no mortgage payments.
In addition, the purchase was designed to keep the current tax base so that Michelle’s property taxes and insurance didn’t change. Now she is safe and secure like Michelle and her husband had wanted her to be.
Gary and Jean decided they wanted to live in their current home for the rest of their lives. They had spoken to their grown sons, and neither one wanted their parents’ home once they died. So, maximizing income while alive was the only consideration when they called me at their accountant's advice.
Gary was a savvy investor and had done well. He wanted to add to that portfolio to guarantee their lifestyle against all contingencies.
He, Jean, and I met to look at options. They choose the reverse mortgage cash-out option. This would give Gary nearly two million dollars tax-free and guarantee them the opportunity to remain in their home for the rest of their lives.
Fiction: With a reverse mortgage you are selling your house to the bank and the house has to be free and clear to qualify.
FACT: Homeowners never give up title or ownership of their homes and most homeowners use loan proceeds to pay off an existing loan.
Fiction: Reverse mortgages are costly and have high fees.
FACT: Interest rates are comparable to conventional Federal Housing Administration (FHA) rates and fees vary by lender. Our company works with six different reverse lenders to design the best programs for your needs.
Fiction: If the home loan balance grows bigger than the home value, the borrower is on the hook for the difference.
FACT: A reverse mortgage is a non-recourse loan, and a borrower, the estate, the children or the trust will never owe the lender more than the current value of the home.
Fiction: All reverse mortgage funds that you receive need to be explained, justified and approved for use by the lender, the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD).
FACT: There are no restrictions, approvals, explanations or reporting required. Funds may be used for any purpose, at will, without justification. Currently, Reverse loan proceeds are received tax-free and do not need to be claimed on your tax returns.
Fiction: I will lose my government assistance if I get a reverse mortgage.
FACT: A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid or Supplemental Security Income (SSI), any reverse mortgage proceeds that you receive must be used immediately. For example, if you request $4,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine.
Fiction: Reverse mortgages are a loan of last resort.
FACT: May people use a HECM Line of Credit as a safety net to draw on in case of emergency. In addition, it is now possible to get a reverse mortgage up to six million dollars.
Many people use this money to invest and create retirement income, as well as use the HECM to pay for property taxes and home repairs.
Fiction: There are few if any differences between a HECMLOC (Home Equity Conversion Mortgage Line Of Credit) and a HELOC (Home Equity Line of Credit).
FACT: They are entirely different except that they are both lines of credit that use your home as collateral for the loan.
Let us separate fact from fiction and Reverse Your Thinking® about reverse mortgages!