Monthly Archives: September 2016

48,794 Senior Homeowners take a HECM in 2016; Count the many benefits

September 7th, 2016  | by Jason Oliva Published in HECM, News, Retirement, Reverse Mortgage

48,794 homeowners took a HECM (Home Equity Conversion Mortgage) in 2016. They used their home equity in retirement to provide funding for a variety of projects, paid up their balances owed and for many of them, established a line of credit that actually earns a substantial growth percentage on their credit balances. If they don’t use the line of credit, it could become a larger amount than the mortgage they took out to establish it, and without payments in their lifetime and there’s a 50% chance the line of credit will exceed the value of the home itself.

A new webinar, co-hosted by Tom Dickson, who leads RMF’s Financial Advisor Channel, served to educate financial services professionals on refreshed ways of thinking about reverse mortgages, particularly within the context of retirement income planning. This involved a basic overview of the HECM program, including the recent program changes post-2013, as well as a variety of simulations depicting how a reverse mortgage can fit into a financial planning client’s retirement plan.

One scenario assumes a 62-year-old client with a home worth $625,500 in Pennsylvania. By taking a HECM line of credit, this client has $327,500 available to them at the time of the credit line’s inception. If the credit line is left to grow, after 10 years, the available proceeds available to the client will have grown to $613,365. By year 20, the credit line will have grown to $1,149,193.*

With this pricing option, the borrower receives a lender credit covering nearly all closing costs. The upfront cost of $125 is for a non-refundable independent counseling fee, on average, which the borrower pays directly to the counseling agency.

“This [reverse mortgage credit line] can basically provide another deferred income vehicle,” Dickson said during the webinar.

Opening a HECM line of credit can basically serve as a “put option” on the value of the home that can protect borrowers in the event that their home price falls in value, Pfau said.

“If interest rates don’t increase in the future, eventually the line of credit will grow to be more than the home value,” Pfau said. “If you start to introduce risk for home price fluctuations and the potential for rates to increase in the future, by age 82—for someone who opens a line of credit at 62—there’s a 50% chance that the line of credit can grow to be more than the value of the home.”

Unlike most retirement strategies and investments, where low interest rates could hurt, today’s current low rates are particularly beneficial for HECMs and the retirees who use them.

“Reverse mortgages are one of the interesting tools that work better in a low interest rate environment,” Pfau said. “Normally, low rates are bad for retirees—it makes retirement more expensive. Opening the reverse mortgage is one of the few strategies out there, relatively speaking, that benefits from a low interest rate environment.”

*This scenario assumes (1) 62-year-old borrower; (2) PA home valued at $625,500; (3) LOC will grow at 1.25% above the adjustable-rate mortgage, which uses the 1-year LIBOR plus a margin of 3.375%. Initial APR is 4.741% as of 6/21/16, which can change annually. Also assumed: 2% annual interest cap, and 5% lifetime interest cap over the initial interest rate. Maximum interest rate is 9.559%; (4) the growth rate remains at 5.85%; (5) no draws by the borrower.

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9 surprising ways to use a HECM (reverse mortgage) says prominent Advisor

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Learning how a HECM can help is a highly personal and confidential event

Those who consider a HECM (reverse mortgage) in order to retrench their finances or as we say, “build a retirement highrise and take the elevator to the top” in retirement don’t need to be treated like an email as part of an advertising event. This is a highly personal exchange and we bring integrity to the discussion becauses we know you care about that from lots of years of experience working with this retirement theme. You’ll like working with us at The Federal Savings Bank. We have a very positive view of the HECM and believe you have full rights to decide for yourself professionally whether or not you take control in order to use your own home equity with this solution. We answer all questions professionally.

Yes, we use emails and webpages like this one when we can because they provide quick and reliable support to deliver important information to and from those we serve as clients.

We also use postcards and personal letters and visit clients personally when we can, by phone or with inhome visits. We consider our role professionally based on integrity. We love to help.

There is no substitute for quality people-to-people communication. We earn your trust right from the get go. Call us anytime to start the discussion.

I hope you’ll trust us by asking questions and expecting straight answers as you sort out the unprofessional explanations many give and get for what used to be called the reverse mortgage. Yes, we call it the HECM (Home Equity Conversion Mortgage) because that is so much more an accurate description — the reality of using home equity to shore up retirement finances — the reality of home equity ownership.

You should be aware that not all those who give information about what they refer to as the “reverse mortgage” are aligned with the truth as we know it and will sometimes shade real issues to support their own sales efforts with competing products.

Thanks for expecting integrity here at Gofinancial.net. As 12 year HECM VETERANS, WE BELIEVE IN THE Home Equity Conversion “Mortgage” as it opens the door to use of your home equity in retirement. WE BELIEVE IN YOUR RIGHT TO USE IT WITH INTEGRITY. Review the many HECM articles here taken from a cross section of professionals and get more information to plug into this unique service on your behalf.

As part of government regulation, you will experience HECM COUNSELING to help sort out the facts if there are unanswered questions. Furthermore, prospective borrowers are not bound by any agreement until 3 days after a HECM CLOSE in case you forgot to ask an important question about HECM.

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