By Alain Valles, CRMP, MBA, CSA
You’ve heard the term “reverse mortgage,” but do you know how it works? A Home Equity Conversion Mortgage (HECM) – often called a reverse mortgage – is a federally insured loan program that allows qualifying seniors 62 years or older to access the equity in their homes in the form of cash, a monthly check, or a line of credit. You can receive the benefits of a reverse mortgage for as long as you live in your home, so long as you stay current with real estate taxes, insurance, maintenance of the property, and other guidelines.
There are two primary benefits of a reverse mortgage: no required monthly mortgage payments on any cash borrowed, and the option of accessing available reverse mortgage funds later in life.
Some of the most common ways people use a reverse mortgage include:
Paying off current mortgage or equity line
Struggling to make a monthly mortgage payment when you have significant home equity can be frustrating. By using a reverse mortgage to pay off your mortgage you can significantly increase your available monthly cash flow.
Home repairs or renovation
Many homes have a leaking roof, wet basement, peeling paint, rotting windowsills, overgrown trees, uneven brick walks, failing heating system, septic system issues, or a wobbly deck. A reverse mortgage can provide the money to correct these issues. Or perhaps that dream addition can now become a reality! Whether it’s a repair or a renovation project, home improvement will help protect against your home losing value.
Supplement a working retirement
Many older people need to continue to work in order to make ends meet. A large number are self-employed, work part-time or have seasonal income. A reverse mortgage gives you the option to convert untapped home equity into tax-free cash to supplement changing income levels. One common example is independent real estate agents who have peaks and valleys in sales. A reverse mortgage can help smooth out their cash flow needs. Wouldn’t you rather work because you want to, rather than needing to work?
Rainy day/emergency funds
Even with the best plans sometimes you need a bit more money. Maybe a health issue arises, or an unexpected house or car repair, or an adult child calls asking for a loan. You don’t want to liquidate your investments. With proper planning, a reverse mortgage can give you the additional cash you need without affecting your financial stability.
Funding an active lifestyle
With improved living habits and advances in medical care, “75 is the new 55.” People want to be able to afford to have fun at any age. It will no longer be unusual for 80-year-olds to be traveling, biking, hiking, or even running marathons. But these activities cost money. A reverse mortgage is one way to fund an active lifestyle while not depleting retirement savings.
For those considering a reverse mortgage, or if your profession includes older individuals, I encourage you to invest 20 minutes to learn if a reverse mortgage will help you achieve your goals. I’d enjoy the opportunity to speak with you about your particular situation.
Alain Valles, CRMP and president of Direct Finance Corp. NMLS 1535, was the first designated Certified Reverse Mortgage Professional in New England. Loan officer license NMLS 7946. He can be reached at 781-724-6221 or by email at [email protected].