Determining how comfortably a H.E.C.M. Reverse Mortgage fits in, with your retirement financial plan, is a very personal decision, and one that you should consider carefully.
This section offers some very simple personal questions to ponder to help you work through the key financial considerations surrounding your retirement goals. There are no numbers to add, no calculations, no tiresome lists of income, assets or expenses. It’s a simple yes/no format that will help you look at your retirement finances from a new perspective, an insightful way to ponder your particular circumstances.
Pondering is a way for you to have a well-rounded picture of how you feel about your finances today, and how comfortable you are with the idea of using your home equity as a cash resource for your retirement.
Please, read the following questions, think about yourself, ponder your particular circumstances, and if you cannot think of a better plan, then perhaps the H.E.C.M. is absolutely right for you.
Do you usually have money left over after your regular monthly expenses?
Do you have cash set aside in an emergency fund “just in case”?
Could you comfortably manage an increase in the cost of your property taxes, prescriptions, utilities or groceries?
Do you feel you can always afford to fill up the car at the gas pumps, regardless of the price?
If one of your children needed financial assistance and you wanted to help them, could you?
Can you handle the cost of birthdays and holidays without straining your budget?
If you wanted extra cash, could you find it without cashing in your investments?
Would you be comfortable adding loan payments to your monthly budget?
Can you afford all the medications prescribed by your doctor?
If you decided to cash in some of your investments to cover a large expense (new car, home repairs, vacation or a get-a-way home) would you pay tax on that money?
Do you withdraw money out of your IRA to make ends meet?
Do you cash in assets to pay your property tax bill each year?
Could you use more tax-free income once in a while?
Different ways a H.E.C.M. Reverse Mortgage can help YOU financially
1. The extra money can take the pressure off managing your expenses today, as well as the inevitable increases that will come tomorrow.
2. The money can give you the flexibility to help your family financially, now...so you can have the pleasure of seeing them benefit from it today.
3. You can use the money to fund a new business or hobby.
4. With extra money “in the bank” you can make spontaneous plans, or handle the unexpected without worry.
5. You can invest the money to generate additional income on a monthly basis.
6. Convert an IRA into a Roth-IRA using your reverse mortgage proceeds to pay the IRA tax bite, then enjoy the tax-free benefits of a Roth-IRA.
The uses are numerous and only limited to your own imaginations and personal circumstances.
Discussing a H.E.C.M. Reverse Mortgage with your family
Most seniors consider their home part of the estate that they will leave to their heir(s). Here are some of the most common estate issues that are of a concern to seniors and their families when considering a H.E.C.M. Reverse Mortgage.
Your estate does not lose title to or control of your home. The H.E.C.M. Reverse Mortgage becomes due and payable after the death of the last surviving borrower. How your heirs choose to repay the loan is up to them. They may choose to keep the home and repay the reverse mortgage with other funds left to them or with their own funds. Or they may choose to take out a conventional mortgage or other type of loan to repay. Finally, they may choose to sell the home and use whatever portion of the proceeds is needed to retire the loan. Once the reverse mortgage has been repaid, the H.E.C.M. lender has no claim on the property.
Other assets in your estate are protected. The amount of money you qualify to receive from a H.E.C.M. Reverse Mortgage takes into account the current and anticipated market value of your home. This means that if your heirs choose to sell your home after your death, the proceeds will cover the repayment of the reverse mortgage. In the event that the fair market selling price of the home is not enough to repay the reverse mortgage in full, FHA will limit repayment to the amount received from the sale of the home leaving the balance of the estate intact for the heirs.
Your estate benefits from any appreciation in the value of your home. After your death your home must repay the outstanding balance on the reverse mortgage. Once the reverse mortgage has been repaid, the lender retains no further claim on the home. This means that, if your heirs choose to sell the home, after the reverse mortgage has been discharged the balance of the sales price belongs to your estate. If your heirs choose to keep the home, once the reverse mortgage has been discharged, the remaining equity in the home belongs to your estate.
Using a reverse mortgage to source extra money can preserve other investments.
Tapping into your investments not only diminishes your capital; it also exposes you to taxes and may even trigger drawbacks of income-tested government benefits (such as property tax exemptions, COPES, Medicare Prescription Drug benefits, the QMB, etc.). The proceeds from a reverse mortgage are received tax-free, so there are no tax implications. Your other investments are preserved intact for greater growth potential, helping to preserve the value of your estate and its ability to grow for the benefit of not only yourself but your heirs, as well.
A final assurance: The H.E.C.M. lender will never ask you or your spouse to move or sell your home.
A H.E.C.M. Reverse Mortgage is written against your home equity with no repayment required for as long as you or your spouse resides in the home. Because there are no payments required, your home cannot be foreclosed due to missed payments. You are required, as with any mortgage loan, to maintain payment of your property taxes, fire insurance, condominium/maintenance fees, and maintain the property in good condition.
ALTERNATIVES
Consider selling and moving. If you cannot picture selling your home, then a H.E.C.M. may be the best solution for you.
If you plan to move in the near future the H.E.C.M. may not be the best plan. Consider what repairs are needed. If you cannot afford to invest into your home so as to receive an appealing sales price, then maybe you should check out a single purpose reverse mortgage. If one is not available in your area, then maybe a H.E.C.M. is the correct choice. Check out www.aoa.gov/eldfam/eldfam.asp for many programs available to seniors.
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