Most retirees understand a Reverse Mortgage (RM) can be used to access a percentage of the equity in their home, but don’t know how versatile a tool it can be. Here are some potential uses: A source of tax-free money (consult a tax advisor). Protection against future drops in housing. A fund to delay taking Social Security early. A fund to draw from during stock market dips, allowing for the faster rebound of your investments. A loan to purchase your home without making a monthly mortgage payment. A source to fund in-home care. A way to 2nd homes or bucket-list vacations. As with any loan, a RM requires property taxes and home insurance to be kept current.
The first RM was done in 1961 to help Nellie Young stay in her home after her husband died. She was the widow of the high school football coach and a forward-thinking banker created a program to help her, even though she lost her husband’s income. Since that first RM to the 50,000 or more retirees that get one each year (according to NRMLA), this program has had some growing pains, but the FHA has worked to continually improve the HECM program. In 1988 President Ronald Reagan signed the RM bill into law, allowing HUD to insure the RM through the FHA; this created the Home Equity Conversion Mortgage or HECM RM. This program is non-recourse, meaning the lender only has a claim on the home, but no other assets. My grandmother was in a RM when the housing market crashed in 2008. Along with her neighbors, her home went upside down, but, unlike her neighbors, she didn’t have to make a monthly housing payment and continued to get her guaranteed monthly check from her RM.
As of 2004, HECM’s may now be refinanced as equity rises and if seniors qualify for the minimum required additional money. In 2008 the first baby boomers turned 62 and the HECM RM program begins to set new records as many boomers take advantage of it. The Safe Act is implemented putting limits on HECM Fees and setting national standards for licensing originators. In 2009 the HECM for purchase was created, allowing seniors to purchase a home without ever having to make a monthly mortgage payment, they must pay property taxes, home insurance, and HOA fees, if applicable. In 2010 the HECM Saver was introduced with lower payouts, but also lower origination and required Mortgage Insurance fees. In 2013 HUD restricts the amount of money available for the 1st year on a RM to protect the consumer; the remaining funds are available one year after closing. Married spouses are required to both be on a RM loan, protecting widows from losing their home once their spouse passes away. Only one must be 62 to qualify for the HECM. As of 2015, HECM’s require a financial assessment to confirm borrowers can afford their property tax and home insurance. If not, monies may be required to be set aside to ensure tax and insurance will be paid (If taxes or insurance are not paid, foreclosure is a possibility).
The RM is constantly evolving and improving to better serve retired homeowners and keeps their foot in the housing game with access to future appreciation on the home. If any equity is left in the home, it passes to the heirs, minus any money withdrawn, fees, and interest. If there happens to be no equity left, you keep living in the home without any monthly mortgage payments and your heirs can inherit the home for 5% under the assessed value.
A RM can be a versatile tool for retirees whether they are wealthy or not. This program is not bad or good; it is simply an instrument that can be the right fit or not.
For information about setting up a reverse mortgage, and getting access to your home equity as you need it, contact: Robert Snow Krepps, NMLS # 255191, at HighTechLending Inc, at rkrepps@hightechlending.com or 877-567-7476.
HighTechLending Inc, NMLS # 7147, is an Equal Housing Lender. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act.
