Record home prices and low interest rates provide senior homeowners the ability to increase financial security without moving or selling the home.
The dream of being financially secure in retirement boils down to two basic realities – sufficient cash flow and liquidity. Essentially, cash flow (having enough revenue to cover monthly expenses) is essential to maintaining one’s lifestyle and protect savings for future needs. Liquidity includes having access to enough funds to meet anticipated and unexpected expenses that inevitably will occur. Clearly, a plan is needed that will maximize all financial resources (including home equity) to meet individual needs and objectives.
Reverse Mortgages – A Financial Planning Tool
Most financial plans focus on the utilization of guaranteed income sources along with savings and insurance resources to meet planning objectives. However, housing wealth (home equity), the largest single asset most people have, is commonly overlooked as a financial planning tool. Properly considered, home equity can have a dramatic effect on increasing and extending financial security.
For homeowners (age 60+) who wish to age-in-place, innovative programs are now available that facilitate the use of home equity without selling the home or taking on unwanted monthly payments. The most prominent equity release program is the reverse mortgage. Among the benefits reverse mortgages provide is the potential to improve near and longer-term cash flow and liquidity. Other benefits include:
- Current mortgage/liens are paid off – eliminating current debt and payment obligations
- Title ownership does not change – it’s just a different type of mortgage loan
- Monthly or periodic payments are not required – voluntary payments are optional
- Guaranteed line of credit can not be canceled or frozen
- Funds disbursed are not taxable income and won’t affect Social Security or Medicare benefits
- Non-recourse loan – neither borrowers nor heirs incur personal liability
- No maturity date – repayment not required until no borrower resides in the property
Improved Cash Flow and Liquidity
Integrating the consideration of adding housing wealth into the financial planning process can be a game changer. The elimination of mandatory debt payments plus access to additional income tax-free funding provides homeowners and planners with more planning versatility and greater capacity.
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
Reverse mortgages are unique programs designed to improve and extend retirement security primarily for those who want to remain at home to age-in-place. Because they are different, they require comprehensive education to ensure understanding and suitability for near and longer-term concerns.
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, Washington DC. More information on reverse mortgages and a list of CRMPs is available on NRMLAs 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. Questions and comments are welcome. Mr. Downey can be reached at (781) 843-5553, or email: GDowney@HarborMortgage.com