Eligible homeowners may have access to more cash and/or a growing line of credit with a reverse mortgage

By George A. Downey

The federally insured reverse mortgage
Historically, reverse mortgages have been surrounded by negativity with phrases like “last resort” and “bad choice.” This is unfortunate, because this stance may be inaccurate and is driven by misconceptions and misunderstandings.
However, when properly understood, they are a unique and versatile resource providing eligible homeowners (one must be 62 or older) the ability to convert a portion of home equity to cash without selling, taking on unwanted mortgage payments, and more.
The primary reverse mortgage program is the federally insured Home Equity Conversion Mortgage (HECM). Recently, the Housing and Urban Development’s Federal Housing Administration (FHA) increased the 2024 lending limit for HECM reverse mortgages to $1,149,8251.

Why it matters
Simply stated, to improve cash flow and liquidity (access to cash when needed) for eligible homeowners. Higher lending limits provide the opportunity of increased funding for higher valued properties.
According to the S&P/Case-Shiller U.S National Home Price Index, home prices increased by a whopping 46% over the past three plus years – unprecedented and unsustainable.2
While future home prices are uncertain, HECM federal insurance may help lock in the current value of loan terms and funding, potentially protecting borrowers from future disruptions.

How they work.
• Optional monthly payments. Voluntary payments are permitted but not required.
• Credit line growth. The undrawn balance grows (compounding monthly) at the same rate charged on funds borrowed, providing more funds for future needs.
• No maturity date. Repayment not required until no borrower resides in the property.
• Non-recourse loan. No personal liability for borrowers or heirs.
• Repayment can never exceed property value at the time of repayment. 100% of surplus goes to owners or heirs; any deficiency is covered by FHA insurance.
• Unlike traditional HELOCs, terms cannot be frozen or cancelled if the loan is 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.

Who should consider a reverse mortgage?
Every homeowner approaching or in retirement should understand their potential, and determine if a HECM reverse mortgage might be a good fit for their needs and circumstances.
Reverse mortgages are not suitable for everyone. However, if it is, a reverse mortgage could be a significant resource for financial and retirement planning.
Education is key – learn everything: 1. The pros, cons, costs, and how they work; 2. The truth about misconceptions; and 3. Determine your eligibility and suitability. If it appears to work for you, know why. If not, why not?

To learn more:
Contact the author with questions or a private consultation.

Eligibility requirements apply. HECM Counseling is required. Subject to credit and income approval. You must occupy the residence as your primary home. You must continue to pay for property taxes, insurance payments, homeowners’ association fee, home maintenance costs, and other fees as required. You must have significant cash available for the down payment. The balance of the loan grows over time and interest is charged on the balance. The loan becomes payable when the last borrower on eligible non-borrowing spouse passes away, sells the home, permanently moves out, defaults on taxes, insurance, or maintenance, or otherwise does not comply with the loan terms.
2 https://fred.stlouisfed.org/series/CSUSHPINSA
3 https://www.hud.gov/program_offices/housing/sfh/hecm/hecmhome

About the Author: George Downey, CRMP (NMLS ID 10239) is the Regional Senior Vice President of The Federal Savings Bank branch located at 100 Grandview Road, Suite 105, Braintree, MA 02184. Contact Mr. Downey at 781-843-5553 / Cell 617-594-3666 / gdowney@thefederalsavingsbank.com, www.thefederalsavingsbank.com/georgedowney