How Can Spending Your Home’s Built In Equity Protect and Extend Your Retirement Savings?

With a Home Equity Conversion Mortgage (HECM), many people 62 years of age or older are choosing to combine their normal retirement savings with their reverse mortgage proceeds in order to finance living 20 -40 years after retirement.

The HECM loan is such a unique and flexible loan program that it allows borrowers to collect a monthly payment to themselves, create a growing line of credit, receive a lump-sum pay out or  or a combination of all three options without  ever having to make a payment on the loan itself for life!

Sound too good to be true? It isn’t, but the HECM loan isn’t magic either.  It’s a loan just like any other FHA mortgage loan that’s backed by the government for the borrower’s protection. When it comes time to sell the house, for whatever reason, the homeowner has choices. At any time you or your heirs can sell your house, pay off the loan then keep the proceeds.  Or, you or your heirs could choose to keep your house by paying off the reverse mortgage without penalty.

If you have passed, the heirs can actually buy your home at a discounted price equal to 95% of the home appraised value at that time. Further, a HECM is a non-recourse loan which means that the only asset the bank can come after to pay for the HECM loan balance is the house itself. In other words, the house owes the bank the money not the owner or his estate. FHA insures that the homeowner or his estate cannot owe the bank more than the house is worth.  This is a tremendous guarantee HUD makes to ensure the homeowner’s reverse mortgage is a safe choice.

For many retirees it’s the unexpected expenses that can derail even the best laid budget and savings plans.  Medical bills and care expenses, home maintenance and family gifts can cause homeowners financial stress which can lead to depleting financial assets.  If you have 2 or 3 major expenses in a year, or you withdraw too much money from your retirement accounts, this can affect your bottom line and may cause unexpected tax consequences. 

How can you avoid some of these retirement savings pitfalls without increasing your income through work? Think about a HECM loan.

Tom Davidson, CFP, Summit Financial Strategies in Columbus Ohio “retirees’ lifetime spending can be raised by 60 percent to even 100 percent by using reverse mortgages strategically with planned portfolio withdrawals.” (http://www.lifehealthpro.com/2015/06/25/how-to-help-senior-clients-spend-wisely-in-retirem)

For more information, specific to how a HECM loan can help you make your retirement savings last by utilizing your home equity, contact David at our VanDyk Cincinnati office.  He can help.

Call David at 513-429-4122 or toll free 1-877-357-1410