Planners recommending a Reverse Mortgage

Why more and more financial planners are recommending to their clients a Reverse Mortgage.

The proper name for this product has always been Home Equity Conversion Mortgage or HECM for short.

The HECM can be used as a defensive play protecting managed assets or to pay off a mortgage. For instance, a client of mine used a Reverse Mortgage to eliminate his house payment and was able to reduce his monthly portfolio draw by over 20%!

Another example: A couple lives in a home valued at $500,000 and still owes $150,000 on their mortgage. With the HECM the couple can pay off their current mortgage, which eliminates their monthly mortgage payment and opens a $72,000 line of credit that can be used as needed or left alone for a catastrophe down the road such as needing in home care. The line of credit grows over the next 5 years to be worth $92,000, 10 years to be $118,000, and 15 years it is $152,000. With their monthly mortgage payment eliminated, they may no longer need to draw down their 401(k) or portfolio to supplement monthly income*.

This example is based on the youngest borrower age 67, home value of $500,000, IMIP of $10,000, $0 origination fee, and other settlement costs of $4000. HECM ARM as of 05/13/2019.

With a HECM, your clients may:

Respond better to market swings. Your clients can access their loan proceeds during market downturns rather than draw down their investments. Similarly, by using their loan funds to supplement their income, they may be able to delay taking social security benefits until they reach full retirement age.

Create more cash flow. Without a monthly mortgage obligation, your clients will free up money to serve other needs and goals.

Open line of credit. Unlike a traditional Home Equity Line of Credit (HELOC), securing a line of credit with a HECM requires no monthly mortgage payments. If unused, the line grows over time.

Purchase a home. If you have clients seeking to downsize or move closer to family, friends and more of the lifestyle amenities they enjoy, they can purchase a new home, with a combination of their funds and a HECM loan. Because the HECM doesn’t typically have to be repaid until they leave the property, your clients may achieve greater liquidity.

Pay for in-home care. According to The Joint Commission, home care can help many patients achieve optimal health outcomes. With a HECM, your clients may gain greater financial flexibility over their health care decisions, including the choice of aging and living comfortably in place.

Additional features of the newer safer federally insured HECM loan are no capital gains or income tax on loan distributions.

Please contact Scott Underwood for learn more at (205) 908-2993. Scott is your local expert. He has only handled the federally insured HECM Reverse Mortgage since 2007. Also visit the financial planner page on his website

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