3 Reasons to Consider a Reverse Mortgage

As life expectancies continue to increase, many retirees are realizing that access to home equity is the best way to fund senior lifestyle expenses. 

Formally launched as the Home Equity Conversion Mortgage (HECM), the reverse mortgage loan is the most misunderstood financial product in the industry. Following a series of improvements and increased protections over the last five years, the reverse mortgage loan continues to gain increasing acceptance among borrowers and financial advisors alike.

Here are three reasons to consider a reverse mortgage:

1. Paying for In-Home Elder Health Care

In the Mid-Atlantic region, the costs of 24-hour in-home health care can range from $10,000 to $14,000 per month. Not many families have the resources to cover those charges, yet many prefer to keep Mom or Dad in their personal home for as long as possible.

The solution is to use home equity to generate a line of credit on the property, so that it can cover the costs of care while keeping Mom in her home. Since no monthly payments are required, there is no increase in out-of-pocket mortgage costs. 

2. Offsetting the Need for Portfolio Withdrawals

When a financial situation exists that requires a person to withdraw funds from an investment portfolio, the potential impact is two-fold. First, money removed from the portfolio will obviously reduce future gains. Secondly, the risk exists that the portfolio funds will “run out.”

The solution is to implement the reverse mortgage to create a line of credit that can be used to supply necessary funds while allowing the investment portfolio to remain untouched.

3. Improving Cash Flow

While the option always exists to sell the home rather than borrow the equity, the question that remains is, “Where will I go?” and “How long will the money last?” If the personal goal is to reduce living expenses and increase cash flow, the reverse mortgage loan could be the best option.

This solution eliminates the monthly mortgage payment and converts the available home equity proceeds into an annuity-like distribution of monthly cash deposited into a personal bank account. These deposits will continue for as long as the borrower remains in the home.

It is important to note that each loan scenario described above has no requirement to make a monthly mortgage payment. Therefore, ongoing loan interest on money withdrawn from the available funds is added to the outstanding loan balance over time. The existing balance is due and payable at the time the home is sold, when the borrower moves away from the home, or when the last remaining borrower passes away. In the meantime, the borrowers are responsible for paying property taxes, homeowners insurance premiums, HOA fees, and general maintenance on the home.

Before deciding if a Reverse Mortgage is right for you or your loved one, get the facts from an expert in your area. 

NMLS# 1221314 William R. Hornbeck • Licensed by the Virginia State Corporation Commission MLO#21409VA and by the Maryland Commissioner of Financial Regulation MLO#15756 www.nmlsconsumeraccess.org 38782 Mount Gilead Road | Leesburg VA 20175 | Call 703.777.6840 Licensed in association with Success Mortgage Partners with headquarters located at 1200 S. Sheldon Road, Suite 150, Plymouth, MI 48170 NMLS#130562  Success Mortgage Partners “Supports Equal Housing Opportunity”. 

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• Understanding the Reverse Mortgage