Unless you’re very wealthy, if you don’t know your numbers
and have a plan, you’re gambling with your financial future

By George A. Downey

Financial advisors consistently report that one of the most common financial fears today is running out of money in retirement. And for good reasons, given the realities: 1. We are living longer; 2. Prices are rising on just about everything; 3. Unknown health care and other costs of aging; and 4. Limited savings and sustainable sources of income.

Planning is key, and timing is essential
Beyond working years, financial stability will be determined by decisions made along the way and how we utilize the resources we have when they are needed. Regardless of what those resources may be now, individual assessment and planning is vital. Moreover, when change is called for, time may be needed to achieve results.
Historically, financial advisement practices have concentrated on managing financial assets and insurance products to achieve objectives and manage risk. For the most part, home equity was not an active consideration in the planning process.
Because home equity is frequently complicated with personal issues and not considered liquid, it has been largely overlooked as a planning tool. That has changed. As the largest single asset for most, it can and should be a basic consideration in every plan. When considered, it can add value, potentially influence other decisions, improve cash flow and liquidity, and extend financial security. Reverse mortgages were designed to fulfill these objectives for older homeowners, especially those who want to age in place. Unfortunately, that potential has yet to be recognized as a mainstream solution.

Reverse mortgages unlock equity to increase financial security
According to the S&P/Case-Shiller U.S National Home Price Index*, home prices increased by 11.33% (January 2020 to January 2021); 19.25% (January 2021 to January 2022); and 10.65% (September 2021 to September 2022). Overall, that’s a whopping increase of approximately 46% in fewer than three years – unprecedented, and obviously unsustainable. While record prices have been achieved in many areas, there is no certainty they will remain high or potentially decline.
Clearly, home equity has achieved levels never imagined. While the future of home prices is uncertain, a reverse mortgage may enable eligible homeowners age 62 years and older the ability to take advantage of this phenomenon and permanently lock in the current value to convert a portion to cash and/or a line of credit.

Timing: When to consider a reverse mortgage?

Simple answer – when property values are high, and the terms are a good fit for individual needs. The leading program is the HUD/FHA insured Home Equity Conversion Mortgage (HECM) reverse mortgage. HECM benefits are guaranteed by federal insurance and determined by a formula that includes one owner’s age (must be 62 or older), current market value, and current interest rates.
Most importantly, the loan terms and amounts are established at closing and not affected by any future economic, financial market, or real estate value declines. Thus, the loan terms are protected for the life of the loan.

Who should consider a reverse mortgage, and why?
Every homeowner approaching, or in retirement, should learn about the potential, and determine if one might be a good fit for their needs and circumstances. They are not suitable for everyone. However, if the fit is right, a reverse mortgage can be a valuable and versatile resource that can increase and extend financial security.
Education is key. Learn everything: 1. The pros, cons, and how they work; 2. The truth about misconceptions; and 3.Determine your eligibility and suitability. If it appears to work for you, understand why. If not, why not?

Reverse Mortgage Overview

  • No monthly payment obligations – voluntary payments are permitted, but not required.
  • Credit line growth – the undrawn balance of the credit line grows (compounding monthly) at the same rate charged on funds borrowed, providing more funds in the future.
  • No maturity date – repayment not required until no borrower resides in the property.
  • Non-Recourse loan – no personal liability.
  • Repayment of loan balance can never exceed the property value at the time of repayment. 100% of surplus goes to owners or heirs. Any deficiency is paid by FHA insurance.
  • Access to funds and loan terms are guaranteed – cannot be frozen or canceled if the loan remains in good standing.
  • Borrower obligations (to keep loan in good standing) are limited to:
    • Keeping real estate taxes, homeowner’s insurance, and property charges current
    • Providing basic home maintenance
    • Continuing occupancy as primary residence

To Learn More…
Get the facts and determine if, or how, the various options to utilize home equity may enhance your needs and circumstances. For more information and a list of Certified Reverse Mortgage Professionals (CRMP), visit the National Reverse Mortgage Lenders Association (NRMLA), www.ReverseMortgage.org, or contact the author with questions or a private consultation.