Rescuing Retirement for Boomers Who Are Broke

There’s a program for seniors age 62 and older under the Department of Housing Urban Development (HUD) and insured by Federal Housing Administration (FHA) called Home Equity Conversion Mortgage (HECM). There are basically four options for a senior who plans to make their home their prime residence and live there forever. The home value limit for HECM mortgages is presently at $625,500.

Reverse Mortgage for Income
A reverse mortgage can generate tax-free income from collateralized equity loans. And it’s one of the few “income” sources in retirement that will not be included in the provisional income test for Social Security benefit taxation. So it has a multi-dimensional economic value to it. Keep in mind, collateralized policy loans from a cash-value life insurance contract can also be borrowed tax-free and avoid the provisional income test as well.

Home Purchase
A reverse mortgage purchase can help you buy your retirement home. As an example, a male age 65 and female age 64 want to purchase a home for $625,500. Their cash deposit down is around $312,000. You still have a government-insured mortgage, just not a mortgage payment. For full disclosure, you still have to pay property taxes and homeowner’s insurance. This is a significant opportunity to buy their dream home. You could purchase a home of greater value, but that program assistance stops at the maximum claim set by the government each year.

Appreciating Equity Line of Credit
The HECM appreciating equity line of credit has no required monthly payments, permits the unused line of credit to increase annually, the line of credit stays open as long as the borrower occupies the home and fulfills the loan requirements, it has no pre-payment penalty and it’s backed by the Federal Housing Administration (FHA). This is an excellent financial reserve account during retirement.

The Combination
Some seniors have combined a home purchase and an appreciating equity line of credit for the best of both worlds. You should contact a certified HECM loan officer for details and determine which option is best for you.