With the number of retiring homeowners projected to expand seemingly exponentially in the coming years, I went on a quest for more ideas on how to maximize your Real Estate investment to help underwrite retirement expenses.
For your consideration: the Home Equity Conversion Mortgage (HECM) – a Federal Housing Administration’s (FHA) reverse mortgage program, which enables homeowners to withdraw some equity in their home in a fixed monthly amount or a line of credit or a combination of both.
Hud.gov says to be eligible for a FHA HECM, you must:
- Be a homeowner 62 or older;
- You must live in the home;
- Own your home outright, or;
- Owe a low mortgage balance that can be paid off with proceeds from the HECM, and;
- Have financial resources to pay ongoing property charges like taxes and insurance.
You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan.
Jack Guttentag, the “Mortgage Professor,” talks about using a longevity annuity as a tool for protecting retirees.
Guttentag says a retiree, age 65, could draw $3,000 a month to age 100 with assets of $600,000, at which point his assets would be fully depleted. He says, however, that this retiree could use $200,000 of his nest egg to purchase a longevity annuity that began payments of $3,000 after 10 years, which would eliminate the risk of impoverishment.
Guttentag says this same retiree could draw on a reverse mortgage credit line to strengthen his retirement as long as he had sufficient equity in his home.
Retirees with equity in their home who depend on pensions rather than a nest egg of financial assets, can supplement their pension income using a HECM reverse mortgage in either of two ways, the Mortgage Professor says.
One way is to exercise the “tenure” option under the HECM program, and receive a fixed annuity payment for as long as she remains in the house. The second way is to exercise the credit line option, using some or all of it to purchase an immediate annuity from a life insurance company.
You can find a HECM counselor online at hud.gov, or by phoning 800-569-4287.
Reprinted with permission from RISMedia. ©2016. All rights reserved.
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