You may have read an article I wrote in November about reverse mortgages (a.k.a. Home Equity Conversion Mortgages or HECMs). In that column, I mentioned how thoroughly I researched HECMs before deciding to become a licensed loan originator. I learned that the product had evolved significantly since its inception in 1987, and that greater and more stringent safeguards had been put in place to protect homeowners. (A good thing!) Through my Real Money radio show I’ve tried to educate listeners on this (complex and often misunderstood) topic by featuring experts who’ve talked extensively on this subject. So, borrowing content from some of those programs, here are a few important points to know about Home Equity Conversion Mortgages:

 

Good Candidates. First of all, you must be age 62 or older to be eligible for a reverse mortgage. A common misconception is that the elderly, or low-income people at the end of their “financial ropes,” are best suited for this product. Not true. It really is a better fit for “middle-Americans” and the “mass-affluent,” who have retirement money set aside in 401ks, pensions, and IRAs.

 

The Benefits. Reverse mortgage proceeds can be used as an emergency fund, for health care expenses or to increase monthly cash flow. Should your portfolio take a temporary drop, you can use the HECM for income instead of selling stocks in a down market. (Note: I do not recommend that HECM proceeds be invested in the stock market, and Federal rules prohibit the investment of such funds by the loan originator.) The reverse mortgage monies can be taken as a lump sum, a stream of payments or as a line of credit that can be drawn upon when needed. No principal or interest payments are required and the “loan” can’t be frozen, reduced or canceled. You remain in your home for life, and you remain on the title as the owner – not the bank! 

 

Caveats. If you have an existing mortgage on your home, it must be paid off first with the reverse mortgage, before you can get any cash. Keep in mind that you will continue to be responsible for the upkeep of your home, including property taxes, insurance, HOA fees and regular maintenance.

 

There isn’t enough room in today’s column to give you all the details, but if you want to learn more, call my office for an appointment. I’ll give you a free copy of Shelley Giordano’s book, What’s the Deal with Reverse Mortgages?, when we meet!