Why Financial Planners are Raving About Reverse Mortgages for Retirement
Reverse mortgages are gaining popularity among seniors as a way to supplement retirement income. Traditionally viewed as a last resort for cash-strapped retirees, reverse mortgages are now being recommended by financial planners as part of a strategic retirement planning strategy. In this blog post, we will explore why financial planners are recommending reverse mortgages and the opinions of well-known financial planners and reverse mortgage authors.
Financial Planners Recommend Reverse Mortgages
Financial planners are now recommending reverse mortgages as a way for seniors to access additional income without the need to sell their home or move. A reverse mortgage can provide a source of tax-free income, allowing retirees to maintain their lifestyle in retirement. It can also be used to pay off debt or to fund home repairs and renovations. Reverse mortgages can be a safety net for unexpected expenses, giving retirees peace of mind and helping them avoid high-interest debt.
Well-Known Financial Planners and Reverse Mortgage Authors
Many well-known financial planners and reverse mortgage authors have voiced their support for reverse mortgages. Here are some of their opinions:
Wade Pfau, a professor of retirement income at The American College of Financial Services, has said, “Reverse mortgages have gone from being a loan of last resort to a tool that can be used in a thoughtful, integrated retirement income plan.”
Jamie Hopkins, director of retirement research at Carson Group, has said, “Reverse mortgages are a viable solution for retirees looking to supplement their retirement income, pay off debt, or fund home repairs and renovations.”
Tom Hegna, a retirement expert and author of “Don’t Worry, Retire Happy,” has said, “A reverse mortgage is a powerful financial tool that can help retirees live the retirement they’ve always dreamed of.”
Barry Sacks, a retired tax attorney and author of “Reverse Mortgages: How to Use Reverse Mortgages to Secure Your Retirement,” has said, “Reverse mortgages have become much more flexible and affordable in recent years, making them a valuable tool for retirees.”
You can buy a home with Reverse Mortgages
Home Equity Conversion mortgage (HECM) is a reverse loan that allows seniors aged 62 and older to buy a new primary residence with a reverse mortgage. The technical term is FHA HP4.
How is HECM different from a conventional mortgage?
Borrower Age:
* HECM: Exclusively available to home buyers aged 62+.* Conventional mortgage: There is no age restriction.
Repayment requirements
* HECM Purchase: Flexible Repayment Feature — The borrower may choose to pay as much as they want each month or not make any principal or interest payments at all. Flexible repayment makes it easier to buy the home you want, save more money and increase cash flow. In order to maintain their loan, the borrower is required to pay property taxes, insurance, and maintenance. Repayment will be required if the borrower sells their home, dies, moves out, or fails to meet loan obligations.
Traditional mortgage Monthly principal & interest payment is required. As the loan is repaid, equity builds.
Amount of the down payment
HECM Purchase: Requires a down payment of between 45% and 62%, depending on the age of the buyer or eligible non-borrowing spouse, if applicable. This range assumes that closing costs will also be financed. The HECM loan provides the rest of the money for the purchase. The buyers can keep more assets and use them as they please, compared to buying all cash.
Traditional Mortgage: Requires a down payment starting at 5% but may require substantially more to qualify depending on income.
Income requirement
HECM for Purchase: Monthly income required is only the amount of monthly taxes, insurance, and HOA due plus all other monthly debt added together. As along as the borrower has at least roughly $600 residual income, they can qualify. Assets can be used as income.
Traditional Mortgage: Total monthly debt should not exceed 45% of usable income.
Protection from owing more money than the home is worth
The HECM program for purchase: A Federal Housing Administration-insured, HECM is a non-recourse program. This means that the borrower cannot owe more money than the value of the house when the loan has been repaid or the mortgage insurance will cover the difference, no risk to heirs.
Traditional Mortgage: Most mortgages do not offer non-recourse. The borrower may owe more money than the house is worth because home values can decrease.
Conclusion
Reverse mortgages are no longer viewed as a last resort option for cash-strapped retirees. Financial planners are now recommending reverse mortgages as part of a strategic retirement planning strategy. Well-known financial planners and reverse mortgage authors have voiced their support for reverse mortgages as a powerful financial tool that can help seniors supplement their retirement income, pay off debt, and fund home repairs and renovations. If you are considering a reverse mortgage, speak with a financial planner to determine if it is the right option for your unique financial situation.
If you need a financial planner recommendation, we can help with that, we know some of the best.
If you would like a free No Obligation Reverse Mortgage quote, just give us a call.
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