Home owners have experienced three banner years of home appreciation with home equity now representing 66% of the average retired American’s wealth. The Federally insured reverse mortgage product known as a Home Equity Conversion Mortgage (HECM) was introduced over 30 years ago specifically to allow older Americans to safely tap into one of their largest assets, home equity. The Department of Housing and Urban Development (HUD) has since added multiple layers of protection to safeguard borrowers offering additional assurances to borrowers seeking to enhance their retirement strategy. If you’re nearing or in retirement, it’s worth a look.
Enhance Your Retirement Plan
Adding home equity to a portfolio strategy can be the key to preserving invested asset accounts in a time of market volatility. Drawing against home equity does not change the rate at which a home appreciates thereby preserving capital in times of a declining market. Conversely, drawing from invested assets in a market downturn dampens an investor’s benefit when markets recover. For those nearing or in retirement, understanding how a reverse mortgage really works could offer access to capital you hadn’t factored into your plan.
Reverse Mortgage Highlights
Reverse mortgages can line up perfectly when coupled with an overall financial strategy. Tapping into the home equity asset could make sense in the face of a challenging market, preserving invested funds.
Financial Benefit:
- Pull from an asset that continues to appreciate unaffected by the loan against it
- Avoid unnecessary distributions from investment and retirement accounts in a down market
- Delay social security benefits
- Provide a tax-free source of income
- Home Equity Conversion Mortgages (HECMs) available balances grow faster in the face of rising interest rates
Lifestyle Factors:
- Enable funding of long-term care or life insurance policies
- Allow for aging in place
- Establish an available line of credit for emergencies that doesn’t impact monthly cash flow if exercised
Who is a candidate for a Reverse Mortgage?
Candidates for reverse mortgage programs have some or many of the following characteristics:
- Age 62+ (this is not optional although a non-borrowing spouse below age 62 is allowed)
- Plan to stay in their home a minimum of 5 years or plan to age in place
- Desire a move to a more expensive market and prefer no increase in their monthly mortgage payment or wish to have no mortgage payment
- Seek to delay Social Security benefits
- Divorce situation where one spouse takes over payments or must provide an equity payout in settlement
- A 50% or more equity position in their current home
- Would like a stand-by line of credit
- Could benefit from a non-taxable income source that doesn’t impact social security benefits
- Looking to fund Roth Conversions
- Seeking to gift portions of their estate to heirs while still living
Reverse at Fairway
Fairway has a dedicated reverse team taking the loan from approval to close. We are licensed to provide all HUD programs with delegated underwriting as well as several private investor options. Assessing candidacy is often best done through financial modeling. I welcome the opportunity to run scenarios and lend insights to all my professional partners and clients who might benefit from adding home equity to their retirement strategy.
Side Note
I fully appreciate how counter intuitive a reverse mortgage product appears on the surface, but I encourage those in strong equity positions and nearing or in retirement to evaluate how adding to your rainy day fund could positively impact your quality of life.
Additional Resources:
Retirement Lending – An overview of mortgage lending options for those over age 62
Fairway Independent Mortgage Corporation Reverse Lending
Webinar recording: Reverse Mortgage & Retirement Planning with Dan Hultquist and Stephen Resch
by Steve Landis for The Landis Group
