![]() ![]() This feature can be used to increase borrowing by taking out the loan early in retirement and spending the money years later.Īs retirement researcher, Wade Pfau points out in Incorporating Home Equity into a Retirement Income Strategy, “. The longer you wait to spend the proceeds after taking out the mortgage, the larger your line of credit will be when you do spend it. It is also thoroughly covered in Shelley Giordano's book, What' the Deal with Reverse Mortgages? (available at Amazon, see link below).Ī unique feature of HECMs is that the line of credit automatically grows over time by roughly the loan's interest rate and it increases with the age of the younger borrower. This is the strategy discussed by reverse mortgage originator, Jim Dean, in the comments section following my previous post. The downside of the reverse mortgage is that spending the equity will have an impact on heirs, though they will have the opportunity to pay off the HECM and keep the home by arranging their own mortgage if your estate cannot. This is a double win for a retiree who currently holds a conventional mortgage – consumption is increased by spending home equity while expenses are reduced by eliminating the conventional mortgage payments. A retiree can refinance an existing conventional mortgage with a HECM and exchange her monthly mortgage payments for monthly loan distribution checks to spend as she sees fit. Refinancing is probably the most common use of HECMs. Retirees who want to pass their home without debt to heirs should go the conventional route, while those who are happier depleting some or all of the home's equity to pay bills will favor the reverse mortgage alternative. The difference is that a conventional mortgage is building the equity in your home while the reverse mortgage is essentially spending it. Once you have identified your strategic goals, some of these HECM strategies might help you achieve them.ĭo you currently make a monthly mortgage payment to the bank and would prefer that they send you a check every month, instead? If this sounds like magic or the late-night rantings of Fred Thompson, it isn't. In effect, strategic planning identifies and answers the larger problems first (What do I want to achieve? What do I want to protect? What do I want to leave to my heirs?) and only then considers the best tactics to achieve those objectives (Should I use a reverse mortgage, equities or an annuity?). This post is a summary of strategies – not an exhaustive list, by the way – compiled from the books, research papers and blog posts referenced in the endnotes below, that retirees might use to incorporate a HECM into a retirement plan.Īs I suggested in the series of posts beginning with A Model of Retirement Planning, Part 1, approaching a retirement plan from a strategic perspective has several advantages. There is even a HECM program that makes it easier for seniors to buy a new home when they don't have adequate income to qualify for a conventional mortgage. HECMs can be fixed rate or variable rate and there are several ways the proceeds can be distributed. ![]() There is more than one way to use a HECM in retirement and there is more than one kind of HECM. But, that complexity contributes to the HECM's versatility. ![]() ![]() The post spawned a great conversation in the comments area that pointed out, among other things, just how complicated these products are. In my last post, The Mortgage is Dead Long Live the (Reverse) Mortgage, I wrote about retirement researchers' renewed interest in an improved reverse mortgage product, the Home Equity Conversion Mortgage, or HECM. ![]()
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |