Retiring Wise Blog

When does HECM make sense

Written By: Austin Quinn

Perhaps you’ve heard of the reverse mortgage, but you aren’t sure what to think of it yet. Will a Home Equity Conversion Mortgage match your financial needs and family situation? If you’re still not sure whether a reverse mortgage is right for you, consider some of the following scenarios that illustrate when a reverse mortgage would make sense for a variety of homeowners.

Eliminating Your Existing Mortgage

When you want to get rid of your existing mortgage and take the burden of monthly payments off your back, getting a reverse mortgage could bring immediate relief. The reason why the HECM is known as a “reverse” mortgage is thanks to the fact that getting one will eliminate your existing mortgage so that you won’t have to make any more monthly mortgage payments for the remaining duration of the HECM. You are still responsible for paying property taxes and homeowners insurance and maintaining the home.

Payment for a reverse mortgage is deferred until the loan comes due, and this will only happen when all borrowers pass away, sell the home, stop living in the home as a primary residence, or fail to maintain the obligations of the loan (such as paying property taxes, homeowners insurance, and maintenance expenses). You can make payments on the loan during the life of the loan if you want.

Untapped Home Equity

Many people reach retirement age and realize that their savings won’t be enough to last for the next few decades. In the past, when seniors found that their savings, pensions, IRAs, or other investments wouldn’t sustain a comfortable retirement, they would usually decide to downsize (find a less expensive home). Often, seniors find that their home is one of their most valuable assets. They may find the home has plenty of untapped equity. The old-fashioned way to access it would be to simply sell it and find somewhere cheaper to live. However, the invention of the reverse mortgage now allows seniors to tap into their home equity while staying put in the same home. You can access your home equity in several ways with a Home Equity Conversion Mortgage – the lump sum, line of credit, and monthly payments are the most common methods, but it’s also possible to use a reverse mortgage to purchase a new home entirely, thanks to the HECM for Purchase.

Relieve Financial Burdens

As previously mentioned, one of the primary benefits of the reverse mortgage is that the loan will not come due until one of the following events occurs: all borrowers pass away, you sell the home, you no longer live in the home as a primary residence, or there is a failure to maintain the obligations of the loan. By following these rules, most borrowers find that they will be able to live out the rest of their lives without the reverse mortgage coming due. Under these circumstances, the reverse mortgage serves as a flexible tool that can be utilized not only to escape constant mortgage payments but also as a means of handling other debts and payments. Borrowers with remaining equity may be able to tackle medical bills, credit card debt, and other expenses that would otherwise remain as worries hanging overhead.

Use the HECM to Diversify Your Portfolio

Contrary to popular opinion, the reverse mortgage isn’t just a loan for “last resort” scenarios. In fact, many borrowers opt for a reverse mortgage in order to support their existing investments. Rather than cash out on a potentially more valuable long-term investment when times are tough, you could use a financial cushion provided by a reverse mortgage in order to let other assets grow over time, uninterrupted. The ability to defer withdrawal on other assets demonstrates the flexibility allowed by the reverse mortgage. In fact, it is even possible to earn more money than your home is worth by using a reverse mortgage line of credit over time.

Take Advantage of the HECM Line of Credit for Long-Term Benefits

When people think of a reverse mortgage, they sometimes think that home equity is converted into cash and borrowed on the spot. However, this isn’t the case with the HECM Line of Credit. Using the Line of Credit, you can still take out a lump sum or monthly payments immediately after the loan has closed. But if you instead leave this equity alone, it has the potential to grow exponentially. So, how does this work exactly?

Calculating a HECM Line of Credit’s potential growth rate is a bit complicated, but it’s simple to think about it in this way – a borrower’s interest rate (which comes from the current index value and margin) is combined with the Mortgage Insurance Premium (MIP) to form an overall growth rate. This rate fluctuates over the course of the reverse mortgage’s duration.

Call One Reverse Mortgage Today

Do any of these scenarios sound familiar to you? If you or a loved one are looking to consolidate debt, tap into home equity, or utilize an effective financial tool for retirement planning, a reverse mortgage may help. Give our licensed specialists a call to learn more. They will answer any questions you have and see if you qualify – with no obligation to move forward.

Ready to take the next step? Now is the perfect time!

Call to speak with a licensed specialist (800) 401-8114

Next
When Does a Reverse Mortgage Make Sense?