Many Ways to Use a HECM
What the Heck is a HECM?
A Home Equity Conversion Mortgage (HECM) is also known as a reverse mortgage. It’s an innovative mortgage loan that allows homeowners age 62 and over to borrow a portion of their equity without a required monthly repayment. The borrowed amount plus any accrued interest and fees does not have to be repaid until the last remaining borrower permanently leaves the home.
Even seniors with a current mortgage may qualify but the loan proceeds must first be used to repay any government judgments, liens, or mortgages. The funds may be taken as a lump sum, regular monthly payments, or a line of credit which makes cash available as needed and grows in value through the years. And the line of credit with a reverse loan can’t be cancelled due to market downturns.
The borrower always retains the title to their home and remains responsible for maintenance, property taxes and insurance.
Who’s a Reverse Mortgage Candidate?
The Client With a Plan…could maintain a “standby “ cash reserve to help through the investment market’s fluctuations, pay for health insurance until Medicare eligible at 65, or replace income to delay taking Social Security until 70 ½ to receive maximum benefits. They could hold onto other assets, allowing them to grow and avoiding income and capital gains taxes.
The Need-Based Client… may ease a chronic cash flow crunch, pay off current mortgage or debts to reduce monthly expenses or pay for a major expense such as a medical or disability need, a foreclosure threat, or a divorce settlement. Real estate taxes, property insurance, and home upkeep would be less of a financial burden.
The Enhanced Lifestyle Client… might use the available funds to make life easier and more enjoyable, perhaps by traveling, renovating their home;, or purchasing a second home. The reverse mortgage could finance a significant portion of the cost of a new home that’s more suitable for retirement. They might take advantage of early gifting for children and grandchildren. Or fulfill a long held dream for their retirement.
And now in 2014…
New legislative changes have further safeguarded the reverse mortgage product, homeowners, and their equity. The National Reverse Mortgage Lenders Association has produced materials and launched a national education campaign to explain the versatility of reverse mortgages as a financial planning tool. You may be hearing about the “New Reverse Mortgage” from clients who want to know more. It’s no longer a product to be used only as a last resort after other assets are depleted. Today with record low interest rates and lower costs, it’s a viable, flexible option for many to consider when formulating a plan.
Gail Wempner is a Reverse Mortgage Specialist with Reverse Mortgage Marketplace, a division of Marketplace Home Mortgage, LLC. She can be reached at 952-544-0821 or firstname.lastname@example.org.