We Work With Trusted Advisors
A Note To Trusted Advisors
Did you know that both the government-backed Home Equity Conversion Mortgage (HECM) or a private jumbo reverse mortgage for higher-valued properties can be used as an excellent tool for high net worth clients to prevent portfolio depletion? It is a loan that needs to be evaluated based on the client's given scenario. We can provide detailed loan scenarios to you (with your client’s permission) to help reach a decision that is aligned with the interest of all parties. We are upfront with all our clients about the advantages and disadvantages of a reverse mortgage.
Advantages
Reverse mortgages provide many advantages for the senior borrower. Here is a short list of just a few:
- Proceeds received from a reverse mortgage typically do not affect Social Security or Medicare.***
- Provides access to a portion of their home's value without the requirement of monthly mortgage payments. Borrowers must continue to meet ongoing property obligations such as homeowner’s insurance and property tax payments.
- Could allow senior to purchase a new home with no monthly principal and interest mortgage payments.
- Borrowers must keep their property taxes current, keep required homeowner’s insurance in force and the home in good repair.
- Improves a senior’s standard of living or allows them to live out their non-working years with fewer financial worries.
- Pays off existing mortgage freeing up monthly cash flow which would have been committed to ongoing mortgage payments. With the reverse mortgage, there are no more required principal and interest mortgage payments.
- Borrowers are required to live in their home as their primary residence, continue making payments for homeowner’s insurance and property tax charges and maintain the property per HUD requirements.
- Allows the senior to maintain their independence while living in their own home.**
- Provides money for in-home health care or medical expenses.
Disadvantages
- Potential foreclosure of the home if the borrower does not meet the ongoing obligations of the loan such as paying property taxes, homeowner’s insurance or other required property charges, and must maintain the property per HUD requirements.
- Uses equity that could be passed on to the estate or children.
- The loan balance increases and the equity will decrease over time.
- May affect eligibility for needs-based programs such as Medicaid.
- For those itemizing tax deductions, a reverse mortgage can eliminate the deduction for home interest if no interest is paid out of pocket. However, if the homeowner pays the upfront fees and the accruing interest, the homeowner deduction may be available to them in the year the interest is paid.
- There are closing costs and insurance that apply, so borrowers should plan on living in the home for more than a couple of years.
- Home Equity Conversion Mortgages are the only Reverse Mortgages insured by FHA.
Who Should Consider a Reverse Mortgage?
- A parent that has substantial home equity with a limited or fixed income.
- Wants to maintain or improve lifestyle.
- Prefers to access mortgage loan proceeds instead of other accounts or sources which may be taxable.
- Wants to remain in home and age in place utilizing a reverse mortgage.**
*Consult your financial advisor.
**You cannot lose your home under normal circumstances and so long as you pay your property taxes, homeowner’s insurance, maintenance costs and otherwise comply with the loan terms.
***It should be noted that any needs-based government benefits could potentially be impacted by a reverse mortgage. Homeowners receiving such benefits should seek qualified professional advice in such circumstances.
