A Guide to Reverse Mortgages in Retirement

A Guide to Reverse Mortgages in Retirement: Is it Right for You?

We would like to express our gratitude to Brian McRae, Retirement Mortgage Specialist of Fairway Independent Mortgage Corporation, for lending his expertise in today’s article.

Have you ever heard of reverse mortgages and wondered what it meant? As people near retirement age and become eligible for Medicare, finances are top of mind.

Planning for living on a fixed income can require a bit of creative thinking. You want to be sure you’ll have the cash flow you need to cover your expenses, including your healthcare.

In today’s blog, we are going to answer all your questions about reverse mortgages, and when it might make sense for you.

Reverse Mortgages Explained

First, what is a reverse mortgage? A reverse mortgage, also referred to as a Home Equity Conversion Mortgage (HECM), allows homeowners who are 62 years of age or older to convert a portion of their home equity into liquid wealth.

Reverse mortgages allow seniors on a fixed income the opportunity to use the equity they have built in their home for any number of things. They may use the money to pay for home repairs, medical expenses, or to improve their quality of life.

One of the main benefits of a HECM is that it allows seniors to access the equity they have built up in their home without having to sell their property or take on a traditional mortgage. This means that they can continue to live in their home while also receiving additional income to help cover their expenses.

A HECM does not require the senior to make monthly mortgage payments. Instead, the loan is repaid when the senior no longer occupies the home as their primary residence, such as when they sell the property, move out permanently, or pass away.

A HECM  can provide peace of mind for seniors who may be on a fixed income and are worried about being able to afford monthly mortgage payments.

Options in a Reverse Mortgage

One of the biggest benefits of a HECM is the flexibility it offers. Seniors can choose to receive their loan proceeds in a lump sum, as a line of credit, or as a combination of both.

This flexibility allows them to choose the option that best suits their needs and financial situation. For example, if a senior needs to make a significant home repair, a lump sum payment may be the best option.

On the other hand, if a senior is looking for a steady stream of income to supplement their retirement, a line of credit may be a better choice.

The HECM proceeds can be used for a variety of expenses. Some examples include:

  • Home repairs or renovations
  • Medical expenses
  • In-home care
  • Assisted living or nursing home expenses
  • Prescription drugs or other healthcare expenses
  • Travel or other leisure activities

A HECM can also be used to pay off outstanding debts, such as credit card balances or personal loans, which can help improve the senior’s overall financial situation.

Meet Betsy and Jim

Betsy and Jim have been married for 35 years and are happily retired.  They live comfortably on a fixed income but have been feeling financial pressure from the market downturn and rising inflation. Their home is a source of love and pride, and they plan to stay in the home for as long as possible.

Like over 60% of retirees, they are still making a monthly payment on a traditional mortgage.  By refinancing into a reverse mortgage, they eliminated their monthly payment requirement saving Betsy and Jim thousands of dollars per month in principal and interest payments.

The reverse mortgage also allowed Betsy and Jim to tap into a portion of their remaining home equity, which they used to remodel the home and add features that will allow them to safely age in place.

Who is Eligible for a Reverse Mortgage?

Homeowners aged 62 and over are eligible for a reverse mortgage.  The home must be occupied as a primary residence. Homeowners typically need to have 50% equity in the home in order for the loan to make financial sense.

Medicare and Reverse Mortgages

With the qualifying age for a reverse mortgage being 62 years old and 65 being the age of Medicare enrollment, many Medicare beneficiaries are in a position where reverse mortgages are important to learn about and explore as an option for financial flexibility.

Many folks on fixed incomes need to consider spending cuts, and we never want medical insurance to be something that must be sacrificed.

Comprehensive medical coverage, especially as we age, is critical both to your livelihood and pocketbook. The difference in coverage and out-of-pocket spend between Original Medicare and a supplement and a Medicare Advantage plan are vast and if not guided accurately, could devastate someone’s retirement savings accounts.

Extra funds from a reverse mortgage, for those where this loan is appropriate, could be the determining factor in securing medical and financial security in your Medicare and medical coverage.

Medicare and Reverse Mortgages

An HCEM can provide financial flexibility and freedom for seniors who are looking to access the equity in their home without having to sell their property or take on a traditional mortgage.

A reverse mortgage does not require monthly payments and can be used for a variety of expenses. Seniors who have significant equity in their home or who own their home outright are likely good reverse mortgage candidates. Because these loans are FHA insured, borrowers are protected.

As it is with many financial decisions, there is a lot of fine print involved with each reverse mortgage so every borrower should be considered on an individual basis. It is important to consult with a HECM expert like the ones we have at Fairway Independent Mortgage Corporation, to determine if a HECM is right for you.

Reverse Mortgages in Austin, TX

Brian McRae has lived in Austin for more than thirty years. He is passionate about helping seniors feel secure in their retirement and experience financial freedom as a retirement mortgage specialist.

If you would like more information about the benefits of a reverse mortgage, call Brian at 512-584-9766 or send him an email at [email protected].