Seniors: Is the Time Right for Reverse Mortgages?

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As housing wealth is increasing, and the uncertainty of the economy continues to trouble seniors planning for, or already in retirement, this may be the right time to consider a reverse mortgage.

According to a quarterly release of the NRMLA/RiskSpan Reverse Mortgage Market Index by the National Reverse Mortgage Lenders Association, senior homeowners at or above age 62, enjoyed a gain of 1.6 percent in their home property wealth. The gain amounted to $121 billion when offset by a $28 billion increase in their mortgage debt.  The increase in wealth set an all-time high at $7.82 trillion for Q2 2020.

The monetary increase has encouraged many seniors to build for the future using their homes as a foundation. To facilitate a healthy retirement, some seniors may consider refinancing. Wanting a lower interest rate on their mortgage is reason enough to seek refinancing. There can also be other benefits to consider. For example, refinancing could come with a shorter term as well as lower interest rates. That would mean the property would be paid off sooner rather than later.

If refinancing and increased debt is not palatable to seniors who are trying to downsize their debt load, a long-term strategy that helps seniors eject debt, gain cash and better prepare for their futures in this uncertain economic climate, involves utilizing their home as a valuable asset at its highest level. That strategy involves reverse mortgaging their property.

Homeowners age 62 and older may take advantage of reverse mortgages providing that they have substantial equity in their property. To qualify for a reverse mortgage loan the borrower’s home becomes the collateral and it must be their primary residence. To qualify further, the borrower must live in the home for as long as they have the loan. As a means of addressing current economics and future security, those who take advantage of this tax-free instrument access a portion of their equity without having to make monthly mortgage payments.

Advantages include maintaining ownership of, and living in, their home. With a reverse mortgage, borrowers continue to own their home. As is typical in most mortgages, borrowers receive a monthly statement that includes interest charges and balance information. Senior borrowers will continue to pay their property taxes and homeowners insurance, but the absence of a monthly payment lowers their cash outlay, and homeowners can gain additional tax advantages by repaying interest charges partially or in full, at any time, without penalty.

As the borrower maintains the title of the home and maintains responsibility for property taxes and homeowner’s insurance payments, no payment is required until the last surviving homeowner moves, dies, or sells the home.

Reverse mortgages are calculated based on the age of the borrowers (most specifically the age of the youngest borrowing or non-borrowing spouse) help determine the amount borrowers receive. The main basis for determining how much borrowers receive is either the value of the home or the HUD lending limit, whichever is less, as well as the interest rates in effect at the time. Taking advantage of this instrument, more than 1.21 million households have utilized an FHA-insured reverse mortgage to help meet their needs for developing a successful retirement plan.

A banking industry icon for more than 40 years, Michael G. Branson, CEO of  All Reverse Mortgage, has dedicated nearly two decades to the reverse mortgage industry. An industry innovator, he was part of the 2007 team that developed and introduced the first fixed-rate jumbo reverse mortgage to market.

Branson champions the strategy and said, “When used correctly, a reverse mortgage, also known as the Home Equity Conversion Mortgage (HECM), can add stability to your retirement years.” He cautions, however, that “prospective borrowers educate themselves and find out everything they can to determine if the program is best for them and their situation.”

Before embarking on a reverse mortgage strategy, borrowers are advised to do their research and make informed decisions. Ask questions of the entities considered as the loaning body and consider alternatives and options to determine if such a program is suitable for their long-term retirement goals. Being educated about the entire process is something all investors should do about all prospective buys, loans, sales and anything that involves their livelihood or future. Learning all the ins and outs about reverse mortgages fits into that due diligence procedure. This is an option, not a sure thing.

The time is right, economically, for seniors to consider reverse mortgages as part of their retirement strategy. It is strong to investigate utilizing a large asset in its most advantageous form at its most advantageous time. Seniors should about it but do extensive due diligence to find out if this financial instrument is right for them.

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