Give retired clients the certainty and flexibility they seek.
Did you know, homeowners 62 and up have over $11.2 trillion¹ tied up in home equity? Helping your clients unlock and leverage some of that home equity as part of an overall retirement strategy can prove a winning move for you and the families you serve. Bring greater balance, diversification, and risk management to the families you serve.
The Challenge
Today, advisors are looking for ways to preserve investments, avoid portfolio losses, secure cash flow and back-up emergency reserves. How can home equity bridge the gap? It’s a financial tool that has been specifically designed for homeowners 62 and older.
The Solution
The Home Equity Conversion Mortgage (HECM) loan is a FHA-insured loan on a primary residence, for people at least age 62:
- Borrowers have the option of whether or not to make monthly mortgage payments as long as they continue to live in the home, pay for property taxes, homeowners insurance, and maintain the home.
- The loan becomes due when the home is sold, the borrower changes residence, the last borrower (or eligible non-borrowing spouse) dies, the last borrower is in a continuing care facility for 12 consecutive months, or if there's a failure to comply with loan terms.
- Like any loan, reverse mortgage proceeds are paid out tax-free.
Proceeds from a HECM loan can be distributed monthly, in a lump sum, as a revolving line of credit, or a combination of these. A HECM Line of Credit (HECM LOC) provides access to equity at a predictable growth rate regardless of real estate performance. With a HECM line of credit (HECM LOC), the available funds grow each month, which represents an increase in the amount of funds available to be borrowed.
HECM LOC in Action
An eligible couple lives in a home valued at $550,000. They take out a HECM loan and open a $221,650 line of credit. This credit (principal) limit grows over the next 10 years to be worth $387,957. Since their tax-free loan proceeds are an income supplement, there is no need to draw down their 401(k) to supplement monthly expenses.
This example is for illustrative purposes only. Example based on youngest borrower age 62, home value $550,000, 1st mortgage loan balance of $96,000, credit limit $221,650, IMIP $11,000, origination fee of $6,000 and other settlement costs of $2,500. Home appreciation assumed at 4%. Third-party fees are an estimate and will vary based on location, loan amount, provider, and other variables. Rates are based on HECM ARM and may not be reflective of current rates available.
Key Outcomes
With a HECM LOC, you and your clients can respond better to market swings. Borrowers can access their loan proceeds during market downturns rather than draw down their investments. Similarly, by using their loan funds to supplement their income, they may be able to delay taking social security benefits until they reach full retirement age (borrowers should consult with their financial advisor).
More Solutions
High-Value Properties: Clients can access up to $4 million in equity on high-value properties with a jumbo reverse mortgage. There is no mortgage insurance required, no capital gains or income tax on loan distributions³ and all loan proceeds are accessed in one lump sum.
Buying a Home: If you have clients seeking to downsize or move closer to family, friends and more of the lifestyle amenities they enjoy, they can purchase a new home, with a combination of their funds and a HECM loan, also known as a HECM for Purchase.
Funding Home Care: According to The Joint Commission, home care can help many patients achieve optimal health outcomes.² With a HECM, your clients may gain greater financial flexibility over their health care decisions, including the choice of aging and living comfortably in place. Borrowers could be subject to foreclosure for reasons including failure to maintain the property or to pay taxes and insurance.
All Loan Options: VA, FHA, traditional, refinance, jumbo, jumbo reverse, reverse for purchase and jumbo reverse for purchase loans.
¹Senior Home Equity Exceeds Record $11.12 Trillion - NRMLA. July 25, 2022. Senior Home Equity Exceeds Record $11.12 Trillion. https://www.nrmlaonline.org/about/press-releases/senior-home-equity-exceeds-record-11-12-trillion
²Home-The Best place for Health Care”- The Joint Commission.2011. Web.22 Jan 2016. http://www.johnahartford.org/images/uploads/ resources/Home_Care_position_paper_4_5_111.pdf
³Capital gains taxes are only due upon a sale. A Jumbo Reverse Mortgage is a loan, secured by a mortgage on the home, and does not require sale of the home. The proceeds of a loan are not taxable as income.