An innovative way that seniors are planning for retirement is by including their home equity into their strategy. Some choose to do this by utilizing a Home Equity Mortgage Conversion (HECM), also known as a reverse mortgage. A recent Forbes article discusses how a reverse mortgage line of credit has long-term benefits that may be able to help seniors well into their retirement years.
A reverse mortgage is a Federal Housing Administration (FHA) insured loan1 which allows you to access a portion of your home’s equity without having to make monthly mortgage payments.2 If you are at least 62 years old and have sufficient equity in your home, you may be able to get the funds now or establish a line of credit to put aside to use when you need it. One of the benefits of a HECM is there are no monthly mortgage payments.2 If you still have a mortgage on your home, it must be paid off using the proceeds from your reverse mortgage loan. If you don’t have a current mortgage, it increases the amount of money you may be eligible to receive.
A reverse mortgage line of credit also converts your home’s equity into usable funds. Unlike a traditional reverse mortgage where the proceeds are withdrawn in a lump sum immediately after closing, the proceeds from a line of credit may appreciate over time. You can withdraw from the line of credit at any time. What isn’t withdrawn will continue to grow.
The benefit when planning for long-term retirement is that with a reverse mortgage, the longer the line of credit goes unused; the more growth potential there is. For example, if you decide to get a traditional Home Equity Line of Credit, the total amount you can borrow is set at the time you secure the loan. However, with a reverse mortgage line of credit, the unused portion of your credit line grows over time, independent of your home’s value. This means that the less you take upfront, the more you’ll be able to borrower later. As long as you meet your loan obligations, your reverse mortgage line of credit will not be reduced. For someone who doesn’t need the money right away, the reverse mortgage line of credit growth option can be a long-term strategy that can be used as part of a financial retirement plan.
If you are interested in how a reverse mortgage can help with your long-term retirement planning, call 800 976-6211 to speak with a licensed loan advisor.
1 As required by the Federal Housing Administration (FHA), you will be charged an up-front mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance.
2 Your current mortgage, if any, must be paid off using the proceeds from your HECM loan. You must still live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.