Is it crucial to have no mortgage in retirement or wiser to do a reverse mortgage?

Using home equity for retirement cash flowI recently received a comment on a blog post saying that it is, “absolutely crucial that Americans reach the vocational finish line (retirement) with their personal residence being FREE & CLEAR!”  Have you also thought this?

I challenge him, and you, to consider to whose perspective is it crucial?  Your perspective, the homeowners’ or their heirs’ perspectives?  Depending on the report referenced, it’s somewhere between 80% and 90+% who want to remain in their homes and age in place, but even if they want to relocate and downsize, being debt free is less important than living their lives with security, independence, dignity and control.

Statistics show a large majority of senior homeowners have mortgages that they have to pay monthly mortgage payments on.  The debt payments can be a hardship for seniors.  Fortunately with the reverse mortgage, the most common being the Home Equity Conversion Mortgage (HECM) offered by HUD and insured by FHA, monthly mortgage payments are not required.

Yes, the reverse mortgage is a debt but to be paid back when the homeowners are no longer living in the home as their primary residence.  The reverse mortgage offers flexible payment options, borrowers can choose to make payments when they want, how much they choose to make or make no payment at all.

And yes, reverse mortgage borrowers are still responsible for paying property taxes, hazard insurance and if applicable, HOA dues.  But these expenses are part of the responsibility of home ownership whether there is a reverse mortgage, traditional mortgage, HELOC or no mortgage.

The reverse mortgage is a non-recourse loan, which means there is no personal liability to their borrowers or their heirs.

Home equity is a retirement nest egg and to use it for retirement cash flow there are two options, 1) sell it (but then where are they going to live and have improved cash flow for a longer term and for long-term care planning?) or 2) leverage the home equity with a reverse mortgage.  The line of credit option with the HECM offers a growth rate which is not available with any other loan.

Reverse Mortgages can be used for Retirement PlanningFinancial advisors are suggesting using reverse mortgages for retirement planning:  Wall Street Journal points out that advisers are now promoting reverse mortgages as a valuable tool for retirement planning in their article “New Math on Reverse Mortgages.”

As Wade Pfau, Professor of Retirement Income at The American College in Bryn Mawr, PA and a Principal and Director for McLean Asset Management, states in his article, Forbes: Wise Reverse Mortgages Can Be the Saving Grace of Unprepared  Retirees, “…that is the nature of retirement income efficiency: using assets in a way that allows for more income and/or more legacy.”

According to Jamie Hopkins, Co-Director of the American College’s New York Life Center for Retirement Income and an Associate Professor of Taxation at the American College, in Forbes, Reverse Mortgages Can Be A Retiree’s Saving Grace “Robert C. Merton, a finance professor at MIT’s Sloan School of Management, recently stated ‘Americans have wrongly steered clear of reverse mortgages.’”

Even with the HECM changes going into effect on October 2, 2017, the reverse mortgage can be a valuable tool in retirement as it always has been.

In the real world a Reverse Mortgage is another planning toolIn a perfect world, ideally it is to not have debt of any kind including no mortgages, having a huge retirement portfolio to cover one’s lifestyle and long-term care costs. 

However, in the real world, many who have thought they have saved for retirement find that when “life happens” they use those funds quickly.  The reverse mortgage is another tool for planning for retirement and long-term care costs as well as more immediate needs.  This way they have a plan and funds for when “life happens.”

If you’d like to improve your retirement cash flow now or for the future, contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide FREE information and facts with NO OBLIGATION, meeting in person whenever possible.

For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2017 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

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Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

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