Pros and cons of doing a Reverse Mortgage
Working beyond age 62 has become normal for most Americans. In-fact a lot of people plan to work until and beyond age 70. Some do this by choice but most do it because of Necessity. Being Retired in America is getting harder financially and millions are searching for better options.
The HECM Reverse Mortgage is becoming a very popular option. More and more I find my clients aren’t doing it out of necessity but out of strategy. Quite often I’ll sit down with clients in their early 60’s and we discuss the pros and cons of doing a Reverse Mortgage now or waiting until later.
These are some of Pros and Cons of doing a Reverse Mortgage in your 60’s.
Reduced expenses – Most people do a Reverse Mortgage to eliminate a strict monthly mortgage payment. For example, by eliminating just a $1200 payment the homeowner reduces their financial burden by almost $15,000 every year or $150,000 in ten years. This is money that can be put into savings or investments to help protect other retirement accounts.
Available Reserves – As they say, “Life Happens” and it tends to happen a lot in retirement. Things like medical emergencies, dream vacations, or children in need can quickly deplete a lifetime of savings. The HECM Line of Credit allows quick access to the dormant equity in your home so you can avoid taking money from other Reserves.
Growth Line of Credit – Speaking of dormant equity, with the Growth line of credit you’re able to grow available funds at an aggressive rate. I explain this in my youtube video “Reverse Mortgage Facts and Strategies”. Suffice it to say that when you have extra equity in your home, that money is put into your Reverse Mortgage line of credit which makes it available for you tax free at any time. But while the money stays in that LOC it will grow at an interest rate that is equal to your mortgage Rate and Mortgage Insurance Rates combined (Typically 5% currently). Not only can you grow existing equity but in certain situations you can add additional funds to this account to grow at that same rate.
Example: let’s say David sets up a Reverse Mortgage with $100,000 in his line of Credit. If his interest rate and mortgage ins rates are 5% combined that $100,000 will grow by $5000 his first year. Likewise depending on his situation, he could add another $20,000 which would pay down his mortgage balance and increase his Line of Credit. His year 2 balance of $125,000 would also grow by 5% to $131,250.
The primary con to doing a Reverse Mortgage has to do with future plans and outlook. Reverse Mortgage costs are charged primarily upfront. So, unless you plan on keeping the mortgage for 5-8 years or more you may be throwing money away in doing a Reverse Mortgage too soon.
I usually recommend against a Reverse Mortgage if:
- My clients are not confident they’ll be in the home long term.
- They don’t have other reasons for the Reverse as a temporary solution such as waiting for a large inheritance or other major influx of cash.
The Pros and Cons of doing a Reverse Mortgage depend on the circumstances of the homeowner. Ultimately the best Reverse Mortgages are those that are well planned and thought out. For this reason it is vital that you work with a true HECM Reverse Mortgage Specialist. Someone who deals with these mortgages frequently and can help you make the right choices.
President – Reverse Mortgage Specialist
Heritage Reverse Mortgage
Heritage NMLS #1497455 Trevor’s NMLS #: 267962
1060 South Main Street Bldg. A Suite 101B
St George Utah 84770