Mortgage

How to protect your clients’ retirement income using a reverse mortgage

Help your homeowners face the specter of reduced income with confidence
  • Homeowners out there should consider using a reverse mortgage in conjunction with their portfolio withdrawal strategy. It can help protect their overall portfolio and improve retirement outlook.
  • Using RM benefits, seniors can supplement their income as and when required. The flexibility of reverse mortgages gives homeowners control over how much of their home equity to use.
  • Such loans, where you borrow from the equity in your home, can help prepare and preserve for the silver years.

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Most Americans face the specter of reduced income. It is no surprise that when they need a loan for a medical ailment or a personal loan, they find themselves left in a lurch. If they are going downhill, it makes sense to protect their retirement income. Borrowers can now use reverse mortgage (RM) and worry less.

After retirement 

Let’s face it, many people do not save enough for a rainy day, let alone for retirement. But the trend is changing, and many homeowners are using a reverse mortgage with other loan portfolios.

It is giving them an opportunity to keep the nest, and at the same time, have a legacy. As long as the loan is affordable, the system is worthwhile to explore. That is what the Federal Housing Administration has done so that lenders are able to provide reverse mortgages with approvals according to the laws of the land.

What makes reverse mortgages accessible:

  • Housing is important for every individual. Hence, to have a roof for senior citizens ensures regulatory standards set by FHA.
  • A good finance structure ensures that the savings are safe.
  • Lenders follow the rules to give mortgage terms. It helps more people to access the facility.
  • FHA also gives insurance coverage.

What should you know about reverse mortgages right now?

Homeowners can encash a part of their equity in the home. As long as they are meeting the obligations of the mortgage loans, they can even purchase a new home with the cash.

To know if they can qualify for such a loan, they need to be 62 years of age or older. The home should be in their name; and if they have a low home mortgage balance to be paid at closing, they will be entitled to the scheme.

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To be further eligible, the home should be a single-family home or two- to four-unit home that is occupied by the borrower.

There is a limit on the equity that can be used for reverse mortgages. It will also be dependent on how payments for the loans are made and monthly costs that incur from the home. On the plus side, this is great for managing income tax returns.

A reverse mortgage is different from a home equity loan

Reverse mortgage pays the borrower as there is no principal or interest payment involved. Whatever proceeds are accrued, they belong to the spouse or estate.

If any equity remains, it passes to the heirs. The debts do not get passed on to the heirs or estate. The borrower will have to pay the taxes on the reverse mortgage, utilities, insurance premiums and other hazards.

In the case of home equity loan, the borrower has to pay monthly installments on principal and interest.

How borrowers can access reverse mortgage services

Anyone can search for an approved lender on www.hud.gov. FHA does not endorse anyone charging a fee for the referring a broker to the lender.

Lenders have the knowledge and can guide any senior citizen to avail of the facility. There are other questions regarding payment that need to be understood. These include:

  • Choosing the payment plan
  • Tenure, term and line of credit involved
  • Modified tenure and terms are also addressed
  • If the rate is fixed, then there is a single disbursement
  • Canceling the loan in three days if they change their minds

Young borrowers are likely to prepare for their silver years now. There is no better time to initiate and speak to them, engage them with the information they need and get the revenue ticking.

Preethi Vagadia is a business architect with Tavant Technologies in New York City. Follow Tavant on Facebook or Twitter.  

Email Preethi Vagadia.