If you’ve ever considered a reverse mortgage you may have discovered it’s not the easiest product to understand. While it may not be the right product for some, it can be a valuable resource for others. Of course it’s important to understand the advantages and potential risks before making such an important decision.1
A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration insured loan. A HECM enables seniors to access a portion of their home’s equity to obtain tax free2 funds without having to make monthly mortgage payments.3 Many seniors use the funds to consolidate debt, make home improvements, pay for medical expenses or cover unexpected expenses.
According to a recent CNBC article, there are a significant number of older Americans entering retirement without sufficient funds to maintain their lifestyle. Therefore, if you’re looking for a way to supplement your retirement income, a reverse mortgage may be an option. “Housing wealth often represents a large portion of retirees’ net worth alongside any other investments they might have. But as the Federal Reserve stalls on raising interest rates, some retirees who rely on investment income may be feeling a strain on their finances as a result of this “go-slow” approach.”1
However, there is a plus side to today’s current low interest rate environment. For those contemplating a reverse mortgage, lower rates can mean more money in your pocket. The extra funds can make a real difference in the quality of lives for many retirees.1
The CNBC article gave the following scenario to demonstrate how lower rates can translate into more money for seniors 62 or older. “For example, at an interest rate of 5%, CNBC posits that a 65-year-old homeowner could take out a reverse mortgage of up to $270,000 on a home valued at $500,000. When rates rise to 7%, the maximum loan amount afforded to this same senior drops to $182,000, according to CNBC, which cites the Center for Retirement Research at Boston College (CRR).”1
If you’d like to take advantage of today’s low rates and see if you’re eligible for a reverse mortgage, please use our Reverse Mortgage Calculator or call 800-218-1415.
1 CNBC: Low Interest Rates Offer Silver Lining for Reverse Mortgage Use – reversemortgagedaily.com, by Jason Oliva, 3/21/16, http://reversemortgagedaily.com/2016/03/21/cnbc-low-interest-rates-offer-silver-lining-for-reverse-mortgage-use/.
2 Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
3 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.
Author: Meredith Manz