Reverse Mortgage

A reverse mortgage eliminates the monthly principal and interest payment and provides access to equity through a lump sum of cash at closing, monthly payments (like an annuity) and/or a line of credit.

The reverse mortgage payments are optional; if not made, the interest is added to the balance which moves in “reverse” and gets slowly larger over time.

Eliminating the regular mortgage payment with a reverse mortgage provides immediate cash flow improvement and using a portion of the line of credit to consolidate other debt will eliminate those payments and improve cash flow further.

The reverse mortgage is a federally insured loan that protects the homeowner from ever having to pay back more than the house is worth.

If the client ever ends up owing more than the home is worth, they or their estate are never responsible for paying back more than the fair market value of the home when they leave or sell the home. For example, if they owe $1M and the house is only worth $500K, they or their estate can sell the home for 95% of fair market value and use the other 5% for selling expenses. The lender will file an insurance claim with HUD and collect the difference at no expense or penalty to the homeowner or their estate.

Any unused portion of the line of credit grows at 0.50% over the interest rate.

If you have $100K available on the line at 5% and do not use it, the available portion will grow to $105,500 after 12 months. And this growth rate is independent of the home’s value; the lien will continue to grow over time even if the house value drops.

Opening a reverse line of credit as close to age 62 as possible, even if the funds are not immediately needed, is an excellent strategy since it gives the line time to grow.

It provides access to home equity that can be used to supplement income and avoid selling depressed assets in a bear market. Reduce draws from IRA's and supplement income with draws off the line of credit instead, then revert to drawing off the IRA's after the markets recover.

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