Reverse Mortgage—A Loan of First Resort

Typically the reverse mortgage* has been seen as a "loan of last resort." The idea stems from very outdated assumptions about closing costs and, quite frankly, some major ignorance about how the loan works. Over the next few weeks, I will be doing a series of articles showing the value of using a reverse mortgage line of credit in retirement planning. As with most financial tools the sooner you start the better the return! If you, like many baby boomers, purchased or refinanced in your 40s or later and used a 30 year fixed rate mortgage, you will be paying a mortgage into your retirement years. This payment coupled with a common decrease in income during retirement could open you up to foreclosure or unnecessarily selling your home. The secure future reverse mortgage is a simple plan that overcomes the problem while allowing you to create a line of credit that will give you the comfort and security of liquid assets throughout your retirement years. To see how it works, take a look at this video:

The line of credit created in this model does not require any extra savings. You simply make the same payment you are presently making on your mortgage. The benefits:

• The ability to miss or reduce payments. If finances are tight you can reduce the monthly payment or stop making payments. No fear of foreclosure through nonpayment.
• The option to borrow at any time from the line of credit.
• The ability to borrow large amounts, tax-free. No need to be re-approved.
• Insurance against home value decline. If your home's value goes down, a traditional HELOC can be frozen or cancelled.
• Security against interest rates rising. If they do rise, so does the growth in the Line of Credit.
• Protection from market volatility. If your IRA or 401K tanks with the market, the line of credit can meet needs until it rebounds.
• The security of a government insured line of credit. If the bank fails or the economy crashes the line of credit is still available, even if the line is higher than the home's value.

*This material is not provided by, nor was it approved by the Department of Housing & Urban Development (HUD) or by the Federal Housing Administration (FHA).

*FHA insures fixed interest rate Home Equity Conversion Mortgages (HECMs), as well as annual and monthly adjustable interest rate HECMs. The mortgagor has the ability to change the payment plan under the HECM at any time provided funds are available. Fixed interest rate HECMs are limited to the Single Disbursement Lump Sum payment option where there is a single, full draw at loan closing and the mortgage does not provide for future draws by the mortgagor under any circumstances. Adjustable interest rate HECMs provide for five, flexible payment options and allows for future draws. The amount of funds available to the mortgagor is determined by the age of the youngest mortgagor (or non-borrowing spouse for case numbers assigned after August 4, 2014). The disbursement of HECM proceeds during the first 12-month disbursement period is subject to an initial disbursement limit as determined by requirements set by the Secretary.

*If the borrower does not meet loan obligations such as taxes and insurance, then the loan will need to be repaid.