Should I wait to do a Reverse Mortgage?
Should I wait to do a Reverse Mortgage? This is a very common question I get from my clients especially those that are in their early sixties. As a Reverse Mortgage Specialist, I feel this is the right question to ask and I take special care to ask a lot of questions to my clients in their sixties before recommending whether or not they do a Reverse Mortgage.
Why Wait to do a Reverse Mortgage?
The biggest reason to wait to do a Reverse Mortgage is regarding future plans. Depending on the value of your home, a Reverse Mortgage can come with high costs. Because of these costs, it doesn’t always make sense to do a Reverse if you don’t plan on keeping the loan for more than about three years. Likewise, if you don’t like the city or home you’re in and don’t plan on staying there much longer it might be better to hold off on doing a HECM until you do find the city and home you love and want to be in for the rest of your life. (If you don’t already live in St George, let me help you by saying, you really should live in St George.)
Are Reverse Mortgages only good for those older than 70?
The quick answer of course is no, but for someone younger than 70 a little more planning and strategy should be used when deciding on doing a Reverse Mortgage. People in their 70s and 80s tend to be more settled and less likely to move. But a person in their 60s usually is just entering retirement and has a much higher probability of selling their home to relocate or downgrade.
Above I explained a couple of redflags where I think doing a Reverse Mortgage before 70 might be a mistake. Below are scenarios of actual clients were doing a Reverse before 70 was the best decision possible.
Cash Flow Planning
If you’ve done some cash flow planning with your financial planner you know that there are certain forms of retirement income such as Social Security Income that increase the longer you wait before drawing. Other retirement assets have specific tax benefits for delaying draws. In either case, it makes sense to wait before dipping into these retirement assets but on a fixed income in retirement waiting is not always possible.
With a Reverse Mortgage, you can delay taking income from your other sources and live on the equity in your home until a more advantageous time. By using your equity through a Reverse Mortgage you can:
- Reduce your current expenses by consolidating debts
- Eliminate your monthly mortgage payment
- Establish supplemental income
- Establish a line of credit for cash draws when you need them most.
One of the powerful features of a Reverse Mortgage is that the equity you access from your home is non-taxable so you can draw the money without tax penalties and once the Reverse Mortgage is set up the homeowner is just responsible to continue paying for normal housing expenses such as taxes, insurance, HOAs, etc.
Investment Planning
Today is February 5, 2018. As of this writing, the Dow Jones Industrial Average fell 4.6% today or 1,175 points. It’s days like today that remind me of the market collapse in 2007-2009. Market Crashes are especially dangerous during retirement years and a sound investment tool can be a true life-saver.
A HECM Reverse Mortgage offers a few unique characteristics which make it one of the most secure and reliable investment tools available. These tools include:
- Terms are based on the value of your home at the time you close your mortgage and cannot be altered by falling home values.
- HECMs can be set up with a Growth Line of Credit where you can make voluntary payments to pay down your mortgage balance and increase your Line of Credit. Every penny you pay into your Reverse Mortgage Line of Credit after closing can be drawn back out with no exceptions or penalties.
- Money that is available in the Line of Credit is attached to a growth factor that is equal to the combined interest rate and mortgage insurance rate. For most loans, this rate is roughly 4.5% today.
Example
Let’s use an example of this to illustrate how these tools could be a huge benefit.
Let’s imagine a man named John has just turned 62. He owns a $400,000 home that has a balance of $175,000 on his current mortgage. His current mortgage payment is $1000 a month.
John is in great health and doesn’t want to retire or draw on his Social Security income until age 70 to maximize the benefit. If John sets up a Reverse Mortgage today he will eliminate his monthly mortgage payment. But if he voluntarily continues to make the same $1000 payment every month until he retires at age 70 he will have paid $80,000 which reduce his loan balance and deposit $80,000 into his Line of Credit to grow at 4.5% annually. At age 70 his $80,000 has grown into an available line of credit of $116,000, all of which is completely no taxable.
If John had waited to set up his Reverse Mortgage he would have made the $80,000 in mortgage payments anyway but because he set up the Reverse today that $80,000 has grown 45% by the time he does retire.
These and other strategies are why it is so important to work with a true Reverse Mortgage Professional who truly understands how Reverse Mortgages can make lives better.
If you or someone you love is ready to look at a Reverse Mortgage call today to set up an appointment or attend one of our next free dinner seminars.
Trevor Carlson
President – Reverse Mortgage Specialist
Heritage Reverse Mortgage
435-359-9000
www.heritagereversemortgage.com
Heritage NMLS #1497455 Trevor?s NMLS #: 267962
1060 South Main Street Bldg. A Suite 101B
St George Utah 84770