The phrase Retirement Mortgages lands me as the elephant in the room, a role I’ll happily embrace if it affords me the opportunity to share what they are and how they work.
Just to finish triggering you, I’ll throw in Reverse Mortgage. Welcome to my world of educating to create awareness, change perceptions, enhance lives.
What is a Retirement Mortgage?
A retirement mortgage has numerous definitions depending on who you ask. We provide access to a suite of mortgage loans that offer the ability for those in or nearing retirement to qualify under unique guidelines specifically written to accommodate post earning years and high equity homeowners. In some cases, the borrower(s) must be at least age 62 to qualify.
Does Retirement Mortgage = Reverse Mortgage?
While Reverse Mortgages have become a popular alternative source of income and can even serve as a financing tool, we work with clients to help them choose the right solution for their current phase of homeownership.
Categories of Retirement Mortgages
Bridge Loans (no age requirement) – enable borrowers with a home to sell the option to exclude any existing debt on their current home from qualifying on a new property making it possible to buy before selling.
- Provides access to equity prior to selling
- Allows for updates and staging on the current home to maximize selling price
- Prevents the need to establish or increase distributions to fund multiple properties
- Offers flexibility to move into the new home prior to listing the current residence
- Creates a stronger offer eliminating any contingency on the sale of the current home
- Can be paired with a loan recast to re-amortize the new loan balance and associated payments once equity from the sale becomes available
Retirement Income Loans (no age requirement) – qualify borrowers on income sources common in retirement. Social security, pensions, established distributions from investments.
- Conventional and jumbo loan programs catering to a wide class of buyers
- Can help preserve cash reserves when retirement income is strong; avoid portfolio raids
- Often combined with the age 62+ asset qualifying loans to fund investment properties and second homes
Asset Loans (age 62+) – qualify borrowers on invested assets in the absence of or in addition to retirement income. Often serves to qualify those early in retirement not yet drawing social security.
- Invested assets can provide all or a portion of the income source for qualifying
- Used to accommodate moving and second home purchases in retirement
- Can be used for investment property financing
- Distributions may need to be established or increased
Home Equity Conversion Mortgage (HECM) (age 62+) – an FHA insured payment optional mortgage loan offering safe access to a portion of home equity where borrowers retain full title with the option to sell at any time.
- Can establish a growing line of credit (LOC) to be used for any purpose, withdrawals not taxable income
- Distributions from the LOC typically have no direct impact on Social Security or Medicare benefits
- Used to: delay drawing from social security, provide down payment assistance to family, fund college tuition or grad school for grandkids, down payment on a second home
- Fund home maintenance, renovations, and updates for aging in place
- Fund in-home care or long-term care for a spouse
- Protect the ability of a spouse to remain in the home after their partner passes
- Divide assets in the case of a divorce
- Can be used to pay off an existing mortgage
- No repayment required as it is a draw on home equity
- Balance in the line of credit grows offering additional access to home equity over time
- Percent of equity available determined by property value, age of borrower(s), interest rate
- Primary residence only – must pay property taxes, insurance, HOAs and maintain the home
- Used by Financial Advisors to manage sequence of returns risk for clients
The Purpose of a Retirement Mortgage
- Conserve savings and investments during the spend down phase of life. Evaluating a mortgage before settling for the wrong home, not having a strategy for future care or worse yet, pulling from investments too early and shortening the life of retirement cash flow just makes logical sense. Whether easing the transition between homes with bridge financing or seeking an alternative source of income tapping into home equity, there are numerous options to help the make the most of homeownership in retirement.
- Avoiding The Sandwich – The challenging tweener state of middle-aged kids called on to shore-up financial shortfalls for their aging parents before their own nest is empty. Caught between managing their own family responsibilities and now their parents’ wellbeing has the Sandwich Generation faced with pulling from invested assets or shorting their own retirement savings. As an alternative to absorbing the burden, parents who are house rich, income/investment light can often self-fund much of their needed care to age in place while maintaining the home in a saleable condition with a reverse mortgage avoiding that shift of burden to their kids.
What’s Next?
Ask some questions, get informed and better yet, learn why the HECM strategy is becoming such a hit with a wide range of homeowners north of age 62. Is a reverse right for you? Maybe, maybe not and honestly, our mission is to help clients decide, not sell them on reverse.
That said, our financial modeling tool can bring the numbers to life helping you visualize the power your home equity can offer to shore up retirement.
If you or someone you know is looking to make a move or add some breathing room to their “what if” retirement savings, take some time to explore the options and add some enjoyment and flexibility to those retirement years.
Written by Sheila Landis for The Landis Group
