Financial planner: When a reverse mortgage makes sense for a borrower

A reverse mortgage is one type of financial product that has the potential to provide real relief in the form of additional cash flow for the right borrower, and should not be overlooked out of hand. Linda Leitz, a member of the Standards Resource Commission and a Certified Financial Planner Board, said in a column published by The Gazette in Cedar Rapid, Iowa.

In his second of two articles examining the potential effects of a reverse mortgage for a well-suited borrower, Leitz aims to discern for a reverse mortgage prospect exactly when the “right time” is for such a loan to be seriously explored. .

“For a retiree who has a mortgage on their home, if the payment puts pressure on the money available for other living expenses, a reverse mortgage could ease the pressure,” she writes. “Depending on the age of the owner and the appraised value of the house, a reverse mortgage could pay off the existing mortgage, which would eliminate payment for the house. There might even be enough equity to provide a line of credit to the borrower. A line of credit can be set up as monthly payments to the borrower or offer the option of withdrawing money as needed. “

The reverse home equity line of credit is one of the most cited product features that financial planners describe to explain the rise in responsiveness that some planners have explained to their audiences over the years. However, if a potential borrower owns their home “for free” without the presence of a term mortgage on the home currently, then a reverse mortgage may still warrant consideration, she says.

“Sometimes a home without a mortgage is a retiree’s biggest asset,” Leitz writes. “If this household could use a little more cash, they could qualify for a reverse mortgage. A lump sum could be invested for future use, or a line of credit could be set up to provide monthly cash flow or the ability to withdraw funds occasionally.

The concept of the Home Equity Conversion Mortgage (HECM) for Purchase (H4P) is also explored, a relatively underused version of a reverse mortgage that some loan officers see as a potential way forward for the industry in as a whole, according to the outreach previously conducted by RMD.

“It’s common for retirees to downsize their homes and it’s common for retirees to decide to be closer to their families. In these situations, a reverse mortgage can be used to buy a home, ”the column reads. “The amount of the mortgage will depend on the age of the borrower and the appraised value of the home purchased. Depending on these factors, there may also be a line of credit available on the home. “

Read the second of two columns on reverse mortgages written by Leitz in The Gazette.