Why Financial Advisors are Re-thinking Reverse Mortgages
As their trusted advisor, you are responsible many times for not only the life savings but shaping the financial future of your clients. Many times your clients are looking to you for solutions and answers often involving home and mortgage advice.
A Home Equity Conversion Mortgage (HECM) commonly referred to as reverse mortgage is a way for borrowers age 62 or older to unlock the equity in their home by turning it into tax-free cash* without having to make any monthly mortgage payments**. And thanks to the flexibility in loan design, recent academic research and the many program changes, including lower costs, a reverse mortgage may be a suitable cash flow solution for:
- Delaying Social Security and pension payouts
- Drawing on tax-free funds to reduce tax liability
- Postponing drawing down retirement assets, giving assets more time to grow
- Increasing cash flow by eliminating monthly mortgage payments
- Accessing a low cost, non-cancelable, GROWING line of credit
- Protecting portfolio performance in a down market
- Creating annuity-style payments using home’s equity
- Replacing cash reserves
- Paying for health care costs
- Purchasing a home which reduces the cash amount they have to put down to “down-size”.
HECM Line of Credit: A Unique Way to Extend the Life of Your Client’s Nest Egg.
By establishing a lower-cost HECM credit line your clients can:
- Use your proceeds now or access them in the future when they want or need them.
- They are charged interest only on the proceeds they take.
- A reverse mortgage line of credit cannot be reduced or revoked, as long as the terms of the loan are met; and
- The unused line of credit grows monthly*** independent of any change in home value, giving them more available funds in future years that may prove valuable as clients’ savings are depleted.
Credit Line Growth:
A very unique feature of the HECM Reverse Mortgage is the Credit Line Growth Rate. The unused portion the credit line compounds monthly at the initial interest rate plus 1.25%!
* Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
** You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
*** The reverse mortgage loan balance grows at the same rate as the line of credit. The line of credit growth is only a benefit if the line of credit is not used to allow for the line of credit to grow over a significant period of time and then the funds are accessed during the life of the loan.