Reverse Mortgage Basics

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The Housing and Community Development Act of 1987 was passed by the United States Congress in December 1987. Section 255 included the statutory requirements of the Home Equity Conversion Mortgage, which is now known as the FHA Insured Reverse Mortgage. President Reagan signed this legislation into law in February 1988.

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Despite the increasing acceptance of the program, many older Americans are not fully informed and are concerned about the terms and process of the loan. This is compounded by the fact that many family members and financial advisors are able to offer second-hand information or anecdotal stories, but their knowledge often fails to provide a full and accurate understanding about reverse mortgages.

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How Can a Reverse Mortgage Help You?

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It was widely believed that reverse mortgages were the "loan last resort" in years past. However, recent research has shown that reverse mortgages are an integral part of the retirement plans for all income levels.

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Reverse mortgages are a great way to purchase a home. Many homeowners over 62 have homes that don't meet their housing needs. The homeowner can sell the home and use a portion of the proceeds as a down payment to finance the purchase of a better home in which case there are no monthly mortgage payments.

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Your increased cash flow from reverse mortgages can be used to pay off a mortgage, other installments, or revolving loans, or to generate monthly income from their equity. This will help reduce their expenses and allow them to have more cash flow for other purposes.

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Reverse mortgage reserve credit is being used by Wealth Managers, Financial Advisors, and Estate Planners to provide a variety of retirement planning strategies. A reverse mortgage can be used as a planning tool to defer or reduce draws against other income streams, provide alternative cash flows during a downmarket, or offset any cost of living increases that may shorten a portfolio’s time horizon.

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A reverse mortgage line can be viewed by others as a great hedge against the risk associated with longevity, a return sequence, and taxes. That said, homeowners are responsible for keeping their home insured and paying their property taxes.