As a professional who works with senior citizens, you understand the challenge of securing a comfortable retirement for people 62 and older. In any economic climate, building a financial cushion is crucial for retirees to protect their portfolios and maintain their quality of life, and is even more critical and challenging to achieve in times of economic uncertainty.
In this article, we’ll explore how recent economic fluctuations have affected the retirement assets of millions of senior Americans and show how the Home Equity Conversion Mortgage (HECM) can be an effective tool for insulating retirement portfolios, improving overall quality of life in retirement and helping retirees afford their dream home.*
Over the past 18 months, the U.S. economy has experienced market downturns that significantly impact everyday people. Some effects felt by retirees include:
HECMs, also known as reverse mortgages, are FHA-insured loans that allow homeowners 62 and above to convert a portion of their home’s equity into tax-free cash.* Loan repayment is due when the borrower leaves the home, sells the property or passes away.
It’s important to note that HECMs are non-recourse loans, meaning that borrowers or their heirs will never have to repay the loan out of pocket. The proceeds from the home sale will cover the borrower’s loan obligation. If there is any shortfall in the loan balance, the Federal Housing Administration (FHA) will cover it.**
HECMs offer valuable features that can help insulate retirement portfolios from market fluctuations.
One of the most potent benefits of HECMs is eliminating required monthly mortgage payments. While borrowers can choose to make mortgage payments for tax purposes, they are only obligated to cover property charges such as taxes, insurance and home upkeep. This extra monthly cash flow is a useful financial cushion for retirement assets, reducing financial stress and promoting a comfortable, secure retirement.
If clients must withdraw during a market downturn, they may lock in losses and jeopardize the longevity of their retirement funds. By integrating HECMs into retirement planning, professionals who work with seniors can help mitigate the negative consequences of periodic market performance slumps.*
A HECM can be used to purchase a new home. The homeowner takes the proceeds from the sale of their existing home, puts that money toward the down payment and closing costs of a new home and utilizes a reverse mortgage on the new home, increasing buying power by up to 200% while preserving other retirement assets.
Utilizing a HECM for purchase can enable many retirees to live where they truly want to live while maintaining a financial cushion. Even for those who genuinely want to downsize, they can hold onto much more cash from the sale of their existing home.
HECMs provide a range of payout choices, enabling you to align your clients’ cash flow strategies with retirement goals and changing circumstances. Two payout options are particularly useful for protecting retirement portfolios:
By opting for modified term payments, eligible homeowners can receive fixed monthly payments for a predetermined period (i.e., 6 months, 12 months, 18 months, 24 months, etc.). This payment plan ensures a steady source of cash flow to shield client portfolios from market fluctuations. By preserving investment assets and avoiding unfavorable sales, retirees can provide their portfolios with the insulation to recover and grow over time.*
Following the initial modified term payment plan, homeowners can choose a flexible credit line to access their home equity as needed. With a HECM line of credit, any unused portion grows through the duration of the loan, providing access to additional funds over time and offering additional financial security to weather future market fluctuations and cover unexpected expenses.
One of the most potent benefits of HECMs is eliminating required monthly mortgage payments. While borrowers can choose to make mortgage payments for tax purposes, they are only obligated to cover property charges such as taxes, insurance and home upkeep. This extra monthly cash flow is a useful financial cushion for retirement assets, reducing financial stress and promoting a comfortable, secure retirement.
It’s crucial to help homeowners 62 and older protect their retirement portfolios in uncertain economies. Market downturns can significantly impact their financial stability, leading to decreased portfolio values, reduced cash flow and increased anxiety. However, the strength of the housing market and the strategic utility of HECMs can offer a solution.
Retirees with mortgages can immediately eliminate the outflow of monthly payments and instead focus on property charges such as taxes, insurance and home maintenance. The flexibility of HECM payout choices adds further portfolio insulation potential, allowing clients to maintain a steady cash flow to preserve their investment assets in down markets.* With the potential for growth in the unused credit line, HECMs offer additional financial security for retirees’ assets in the future.