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Wealth Managers along with their clients that are preparing for retirement are reviewing portfolios to increase their client’s monthly income. Far too often, clients and their Wealth Managers look to draw down retirement / investment accounts and overlook one of retirement planning’s secret weapons. Fortunately, there is a way that homeowners can use their homes to help finance their retirement — to turn the value of their property into usable cash without the emotional trauma of having to sell and move and postpone drawing down their retirement accounts.

A reverse mortgage loan (HECM) will convert your client’s home equity into usable cash, which can be used to supplement monthly income, make home improvements, pay medical bills or other debts, or even fund a family member’s college education all while not incurring a mandatory monthly payment (taxes and insurance must be maintained along with regular home maintenance). Instead of your client making monthly mortgage payments, the lender pays you in the form of fixed monthly payments for the rest of your life, or as a lump sum or a line of credit that can be tapped when needed (up to a certain limit). The income you receive is generally tax-free and doesn’t affect your Social Security and Medicare benefits.

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For your client to be eligible for most reverse mortgage loans, they must be age 62 or older and the home must be your principal residence. Even though this is a home loan, your client does not have to repay the principal, interest, and fees for as long as they (and usually their surviving spouse) continue living in the home or the property is sold.

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With a reverse mortgage loan, your client can effectively annuitize their home. The monthly payment they receive is computed using standard annuity methods that take into account their age and life expectancy (as well as their spouse’s age and life expectancy), the appraised value of the property, current interest rates, the type of distribution they choose, and the amount of equity that is assigned to the loan company.

And even though they will never owe more than the value of their home when the loan becomes due (upon death, when they no longer live in the home as their primary residence or they become 150 years old), keep in mind that home values have the potential to increase over time. In the cases that the home is valued less than the reverse mortgage loan balance, the heir(s) would have the option to walk away from the property with no recourse to your clients estate.

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The Home Equity Conversion Mortgage (HECM) is a federally insured reverse mortgage.

 

To find out if a Reverse Mortgage Loan holds advantages for your clients, call the professional staff at 1st Legacy Capital today at 662-268-8877

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