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If you ever want to delete a room, start a conversation about reverse mortgages. You will have the horses of Oeuvres and then some to yourself.
But people should not avoid talking about a tool that, in the right circumstances, could be used to improve their financial safety in retirement.
This is how Don Graves, founder of the Housing Wealth InstituteIn a recent retirement podcast of decoding (see video above or listen below). “It’s not creepy,” he said. “It’s not dangerous … it’s just a mortgage.”
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According to Graves, an inverse mortgage and, in particular, domestic capital conversion mortgage, is a federally secured loan for 62 -year -old retirees and allows them to turn part of the value of their home into dollars without taxes without sacrificing the property or making monthly mortgage payments.
“It’s just a domestic capital loan for those of 62 years or older who gives them access to dollars without the burden of making a main monthly payment and a payment of interest,” he said.
Reverse mortgages have a long story. Originated in 1961, they gained support from the North -American Federal Government in 1988 through the HECM program. Internationally, these financial products are marketed with a more accessible terminology. In the United Kingdom, they are commonly known as “life mortgages” or “liberation of capital”, terms that more transparently describe their function of turning home equity into accessible funds during retirement while allowing owners to remain in their residences.
According to Graves, about 98% of the inverse mortgages in the United States are Hecms, which are assured by the federal housing administration in the United States Department of Housing and Urban Development.
And these federal support loans provide significant consumer protections and standardized terms that have helped establish reverse mortgages as a legitimate financial planning tool for qualified owners.
Cora Gates, 68, is proposed for a portrait outside of his family home in Ferguson, Mo., on July 23, 2015 (Reuters/Addresses latif) ·Reuters / Reuters
By the way, reverse mortgages are not for everyone.
Graves said that of the 16,000 people he has talked about for the last 26 years in the business, only 3,000 reverse mortgages advanced. The resource may not make sense for those who do not intend to live in their long -term home, do not have a strategy or a need for funds and do not need additional sources of income.
However, some types of owners need to consider reverse mortgage, said Graves. They include 62-year-old housing owners who plan to stay home in the long term; those who seek to increase cash flow, reduce risks, preserve assets or add retirement savings; and people who wish to eliminate a mandatory monthly mortgage payment to release the cash flow.
According to Graves, retirement in the future will be more expensive and less predictable. He explained that most retirees are based on three traditional buckets: employment, investments and income of Social Security and/or a pension. “And they have to last them whenever they do,” he said.
Graves said that when he faced the critical question, “will it be enough? Will this?” Most honest retirees say, “I don’t believe it.”
That is why another resource that has 87% of North -American retirees, their equity, could be the response to improving retirement safety.
“You have a fourth bucket,” said Graves.
“If we could turn your home into a growing reserve fund, could increase the flow of cash, reduce risks, preserve assets, improve liquidity or even add new dollars to retirement savings?” Added. “Modern reverse mortgage is designed to do these five things.”
According to Graves, an amount of reverse mortgage loans is based on the age of the youngest spouse, the value of the home and the intended interest rates. He said that the line of credit grows over time and is currently around 7%.
Some common uses of reverse mortgage include removing existing mortgage payments, creating a growing line of credit for future needs and complementing retirement income. Retirees can also look for a reverse mortgage to establish a reservation for long -term health and health needs, help tax management strategies and create a volatility buffer for their portfolio during market falls.
In order to maintain the reverse mortgage in their place, the owners must continue to live and maintain the property, pay taxes on the property and maintain the insurance of the homeowners.
It The loan is done due When the last surviving borrower moves, dies or enters a center of attention for 365 days more consecutive.
Of course, reverse mortgages have no costs, including early costs of mortgage insurance premiums, origin rates and standard closure costs.
It is noteworthy that there are also consumer protections, including Compulsory advice with an agency approved by FHA. In addition, the reverse mortgage is a loan without a resource, that is, the borrowers never owe more than the house is worth.
