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6 Reasons Reverse Mortgage Loans are Growing in Popularity

Updated: Jun 16, 2022


Picture, senior couple enjoying their freetime outside after receiving a reverse mortgage loan -Reverse Mortgage Resources -My Reverse Mortgage Wa.
A reverse mortgage loan is secured by your home!

Today’s reverse mortgage applicant isn’t the desperate homeowner you might think. Sure, during the housing crash, the FHA-insured reverse mortgage known as a Home Equity Conversion Mortgage (HECM) was a lifesaver for those in need. It helped homeowners who were “house-rich and cash-poor” remain in their homes without a monthly principal and interest mortgage payment. They just need to pay taxes, insurance, and maintain the home.


However, that’s not typical of today’s new reverse mortgage applicants. The HECM is becoming popular with homeowners 62 or older, who don’t need one in the traditional sense but are using the reverse mortgage as part of their overall Financial Plan for Retirement. In this article, I will explain 6 reasons why this Interest is growing.


1. ADDITIONAL CONSUMER PROTECTIONS

In the last decade, the HECM program has gone through so many dramatic regulatory changes, that it no longer looks like the “old” reverse mortgages prior to the Great Recession. A reverse mortgage is simply a loan secured by the home where repayment is deferred to a later date. With the HECM product, the homeowner retains title and control over the home. Any loan balance owed is paid back when the home is sold or refinanced. Also, all reverse mortgages are non-recourse loans. This means that the government ensures that the homeowner or their estate, will NOT be responsible for accrued mortgage debt that exceeds the home’s value at the time the home is sold, eliminating the concern of owing more than the home is worth, should home values decline in the future.


2. HOME VALUES

Home values have risen dramatically creating more senior home equity than ever before. Senior home equity recently hit an all-time high of $10.19 Trillion, According to the NRMLA/RiskS, pan Reverse Mortgage Market Index. This home equity is easily accessed through a reverse mortgage, creating more cash flow and security for older Americans. Qualified applicants may access from 45 to 75 percent of their home’s value depending on the age of the youngest borrower or spouse and prevailing interest rates.


3. FINANCIAL PLANNING ADVANTAGES

Homeowners with well-funded retirement portfolios are using reverse mortgages proactively as a retirement planning solution. The two primary reasons are 1) The unused funds from a HECM loan grow, in the borrower’s favor, at the same rate the loan balance grows, and 2) Draws from home equity are not taxed as income. Consequently, savvy homeowners and their advisors are using the HECM product for increased cash flow and possible tax advantages. If used properly, they can pay for future home care, protect traditional retirement assets, and even increase a homeowner’s net worth.


4. HECM FOR PURCHASE

We are seeing an increase in clients using a reverse mortgage to purchase a new principal residence even when they could pay for the home in cash. Many seniors are unaware that the US Department of Housing and Urban Development (HUD) created a way for those aged sixty-two and older to purchase a principal residence and obtain a reverse mortgage within a single transaction. This was specifically designed to assist homeowners with three goals: RELOCATE to be closer to family members or to another geographic area. DOWNSIZE to homes to match their physical needs or limitations. UPSIZE to their dream home on the beach, lake, golf course, or active adult community.


With the HECM for Purchase option, it’s now possible to buy the home you need or want, but without the typical required monthly Payment obligation. You just need to pay taxes, insurance, and maintain the home.


5. PAYING FOR HOME CARE

Most Americans will need some form of care, and older homeowners overwhelmingly prefer to have that care in the comfort of their own homes. The question then becomes, how do we pay for it?


Keep in mind, that home care is quite different from medical care, which is often easier to pay. Not only is home care expenses, but it also has a way of disrupting traditional retirement plans. Increased distributions from traditional retirement savings to pay for home care will result in 1) An increased tax burden, and 2) An immediate decrease in the retirement portfolio. If reverse mortgage clients can draw funds from a non-taxed home equity nest egg, to pay for Home Care instead of Retirement savings– it will result in more cash flow, fewer taxes, and higher net worth.


6. INCREASE HECM LIMITS

In 2022, HUD dramatically increased the HECM home value limit to 970,800 for calculating available loan proceeds. For this reason, more homeowners with home values that exceed $ 1 million dollars are looking at using the HECM product for retirement cash flow.


Whether it is used to purchase a home, increase cash flow, or pay for aging in place, the reverse mortgage is gaining interest as a powerful and versatile retirement tool.


Joan Qvigstad

Retirement Mortgage Specialist

NMLS # 38002

Fairway Independent Mortgage


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