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The Reverse Mortgage Explained By An Experienced Industry Veteran
39 views · Sep 8, 2022
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The Reverse Mortgage Explained By An Experienced Industry Veteran

Brought to you by Reverse mortgage resources for seniors, their families, and their advisors.

Part 1 - Why the Reverse Mortgage?

According to 2015 US Census data, the median household net worth for Americans 65 and older is $201,500. Not too shabby, right? But here's the problem: almost 70% of that number is home equity. 

Home equity? What's that? Home equity is the difference between what your home is worth and what you owe on your mortgage.

Home equity is great to have, but it's not liquid. You can't exchange it for a nice dinner or plane tickets to a tropical destination. It has no real impact on your retirement lifestyle unless you convert it into cash. 

In the past, there were just two ways to convert home equity into cash: Sell your home or do a "cash out" refinance.

Selling makes no sense if you want to keep your home. A "cash out" refinance can sometimes make sense, but it comes with the downside of a monthly payment.

Fortunately, there's now a third and better option: the reverse mortgage.

Part 2 - What is a Reverse Mortgage?

A reverse mortgage is a unique home loan designed to convert home equity into cash in retirement.

The most popular reverse mortgage in America is the Home Equity Conversion Mortgage (HECM) . . . or "heck-um", as industry professionals 
call it.

The HECM became reality on February 5, 1988 when President Reagan signed the Housing & Community Development Act of 1987. 

The HECM is overseen and regulated by the Department of Housing 
and Urban Development (HUD) and insured by the Federal Housing Administration (FHA).

Over 1 million Americans have taken advantage of a HECM since the program's inception.

Part 3 - HECM Basics 

To qualify, you must be at least 62 and a homeowner.

No monthly mortgage payments are required as long as at least one borrower (or non-borrowing spouse) lives in and maintains the home and pays the property taxes and homeowner's insurance.

You remain the owner of your home and you can leave it to your heirs. Your heirs will inherit the equity in your home, whether they choose to keep it or sell it.

The HECM is a non-recourse loan; FHA covers the shortage if your home isn't worth enough to pay off the entire balance.

HECM proceeds have no impact on 1) Income taxes 2) Medicare benefits 3) Social Security retirement benefits.

You can take the proceeds as a 1) Lump sum 2) Line of credit 3) Monthly term/tenure income . . . or a combination of all three options.

Homeowners commonly use the proceeds to: 

Eliminate existing mortgage payments 
Eliminate credit card, auto loan, and other debt payments
Pay off medical bills 
Do home improvements 
Supplement retirement income and assets 
Pay for long-term care 
Set up a "rainy day" emergency fund

You can use the funds for whatever you like.

Thanks for watching! We hope this was informative.  Please click the Like button to help us get the word out. Thank you!

Want to get an estimate of how much reverse mortgage lenders may offer you? Check out our fantastic free reverse mortgage calculators here:

For more in-depth information about the HECM reverse mortgage, check out our article here:
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