Mortgages for Seniors

Most seniors have seen the ads on TV about reverse mortgages, which is the home equity conversion mortgage program (HECM). This is a program under HUD and insured by the FHA for seniors age 62 or older who use the equity loans as tax-free income from their prime residence. But HECM has additional options that can be used as retirement strategies.

Purchasing a Home: Under current HECM guidelines, seniors ages 62 or older can purchase a home up to the HECM limits of $636,150 for roughly $321,000. HECM mortgages are “age determinate,” which means if you were 10 years older at age 72 the same home would require around $278,500 at closing. You still have a mortgage, but you don’t have a mortgage payment for the rest of your life, if you live in your home until your passing. You can select a fixed or adjustable rate. Keep in mind you still pay your home property taxes, homeowners insurance and HOA fees. One last thought: You can also calculate the maximum home you can purchase by a cash deposit, i.e. a couple both 62 years old with $250,000 could purchase a home for roughly $500,000.

An Appreciating Line of Credit: Under HUD and FHA guidelines you can purchase an appreciating line of credit uncorrelated to the market value of your home. Any unused portion of the equity line continues to grow at the stated interest rate, currently around 6%. This is an excellent financial backstop or reserve account during retirement for retro fitting your home for senior living, hiring assisted home care and car and home repairs. But unlike a traditional HELOC loan you don’t have to pay interest, or principle and the note can’t be called.

The Combination of Both: Some seniors have combined HECM home for purchase and the equity line of credit. So in our first example, a 62 year old couple buys a home for $636,150 with a cash deposit at closing of around $321,000, but they add an extra $100,000 to their deposit. They’ll have access to the extra funds after one year.

There are other creative ways to use your home wealth with HECM strategies. You’ll need to seek out professional help to discover which one is suitable for you