Record-breaking home prices – a windfall for sellers, a challenge for buyers, and a unique opportunity for older homeowners who want to age-in-place. Now, they can keep their home, access cash fom the equity without the obligation to make loan payments, and more.
The good news, thanks to the extraordinary run up in home values recently, home equity has soared. Unfortunately, it’s not liquid unless one sells and relocates, or borrows on it. Borrowing, for homeowners in or approaching retirement, is problematic as lending qualifications are considerably more stringent, and borrowers are required to make unwanted monthly payments – a direct threat to fixed income budgets.
Home Values – Where are they going?
Nobody knows. The COVID-19 pandemic and worldwide disruption of virtually everything creates questions we have no answers for yet. However, we do know that, as trees don’t grow to the sky, real estate prices don’t either. Sooner or later home prices will respond to changing realities and economic conditions favorably and unfavorably.
The questions for homeowners that want to age-in-place are: (1) Can converting some of today’s home equity to cash make sense for me, and why? (2) When and how is this best accomplished? and (3) How can I learn more and who should I contact?
Home Equity – A vulnerable and underutilized asset
Home equity (housing wealth) is the largest single asset of most homeowners. Any reduction of value can have a profound and long-lasting effect on retirement finances. The Great Recession (2008) proved property values declines can happen dramatically unexpectedly. Value recovery, on the other hand, takes considerably longer – time older homeowners may not have.
Fortunately, senior homeowners may have the ability to hedge this risk by locking-in today’s values and gain access to more funding now, or later when it may be needed. To this end, the HUD/FHA insured Home Equity Conversion Mortgage (HECM) reverse mortgage was created by Congress in 1989 to enable senior homeowners the ability to access a portion of home equity to increase and extend financial security and homeownership.
Reverse Mortgage – A solution protecting home value and increasing financial resources
One of the unique features of reverse mortgages is that the loan amount and terms are established up front and guaranteed for the life of the loan. Traditional home equity loans and lines of credit may be unavailable, frozen, or cancelled in adverse economic times. Reverse mortgage borrowers, on the other hand, are protected from these risks regardless of any future economic or real estate market decline.
A key factor determining reverse mortgage funding amount is the home’s current market value. Fortunately, reverse mortgage borrowers can lock-in current record home values, create access to greater funding amounts, and gain protection from the uncertainty of future economic or property price declines.
Current market conditions provide record benefits
The financial benefits provided by a reverse mortgage are directly related to the home’s current market value, owner’s age (62 minimum), and current interest rates. As a result, today’s historically high home prices and low interest rates combine to provide greater funding potential to reverse mortgage applicants.
Unique and Versatile Financial Planning Tool
Financial advisors are recognizing that reverse mortgages make possible borrowing with exclusive features including: (1) no obligation to make payments; (2) no maturity date as long as one borrower lives in the home, (3) receive income tax-free distributions, (4) use funds for any purpose, (5) establish a guaranteed growing line of credit that can’t be cancelled as long as the loan remains in good standing, (6) no personal liability, (7) no obligation to repay more than the property value at time of repayment, and more.
Reverse Mortgage Common Uses
- Eliminate mortgage and other debt payment obligations
- Establish periodic distributions to supplement cash needs
- Pay health and long-term care costs
- Reduce longevity risks
- Fund contributions to family, church, and charities
- Purchase second home, RV, travel
Borrower Obligations – It’s A Mortgage – Just Different
Funding and loan terms cannot be frozen or cancelled as long as the loan remains in good standing. Borrower obligations are limited to:
- Keeping real estate taxes, liability insurance, and property charges current.
- Providing basic home maintenance
- Continue living in the property as the primary residence
Good For Some – Not For All
Every situation is different. A reverse mortgage may, or may not, be a good fit based on individual qualifications, circumstances and needs.
To learn more, consultation with a Certified Reverse Mortgage Professional (CRMP) is recommended. CRMP’s are certified, experienced, and exam tested professionals pledged to strict observance of the Code of Ethics & Professional Responsibility of the National Reverse Mortgage Lenders Association (NRMLA), Washington DC. More information on reverse mortgages and a list of CRMPs is available on NRMLA’s consumer website www.reversemortgage.org.
George Downey (NMLS 10239), is a Certified Reverse Mortgage Professional (CRMP) and the founder of Harbor Mortgage Solutions, Inc., Braintree, MA, a mortgage broker licensed in Massachusetts (MB 2846), Rhode Island (20041821LB), NMLS #2846. Visit our website at www.HarborMortgage.com. Questions and comments are welcome. Mr. Downey can be reached at (781) 843-5553, or email: GDowney@HarborMortgage.com