By Dallas Riddick
Did you know that your clients aged 62 years or older that have sufficient equity in their home may qualify for a Home Equity Conversion Mortgage (HECM) loan with a Line of Credit (LOC) disbursement option to help stretch their retirement savings? A HECM Reverse Mortgage LOC may help preserve your clients retirement wealth by using the HECM LOC funds to defer drawing down on social security benefits, or avoid selling off retirement investments during down markets. This is a powerful tool to help compliment a broader financial plan. Financial Advisors help stretch retirement dollars!
For example, Carol Vorsick thought she had saved enough for retirement but now at age 68, she is not so sure. She worries every time she looks at her retirement account statements. She has been withdrawing about $1,200 per month ($14,400 per year) since her husband passed away and she retired two years ago with approximately $300,000 left in her account. If she continues withdrawing at her current rate, she may be at risk of running out of money in her late-80’s.
However, a HECM Reverse Mortgage LOC loan can provide Carol with an additional source of tax-free funds so that she doesn’t necessarily have to withdraw as much from her retirement account. By using a HECM LOC loan with a monthly draw to supplement 45% of her income needs ($6,500 per year), her current retirement account can last over 30 years compared to only 20 years without a HECM reverse mortgage loan.
In addition to Carol stretching her retirement savings, with a HECM LOC loan she will not be required to make a monthly mortgage payment because any existing mortgage is paid off using the proceeds from the HECM loan. However, there are no prepayment penalties for a HECM LOC loan so the borrower has the option to make payments which would reduce the outstanding balance of the loan and increase the available LOC for future use. Interest will only accrue on the amount of funds borrowed.
With a HECM LOC, the unused portion of the credit line grows giving the borrower increased borrowing power. The unused portion of the LOC grows at the same rate which the loan accrues monthly interest and MIP. Taking a HECM Reverse Mortgage LOC early in a clients retirement years and preserving the LOC for future use is also a way for your client to use their home equity as part of a comprehensive retirement plan.