If you own your home, whether in part or outright, then a reverse mortgage is potentially a valuable tool that can help both decrease your expenses and increase your income during your retirement. Now, you might say “Forget it! That’s the major part of my nest egg and I’m not fooling around with that stuff.” Or you might say “Well, I already have a mortgage so I clearly don’t qualify.” But not so fast — a reverse mortgage can be a viable option for a variety of financial plans. Let’s take a closer look at the details.

plynty recommends the Home Equity Conversion Mortgage (HECM), which allows borrowers to convert the equity in their homes into a monthly stream of income or a line of credit. The basic requirements to qualify for a HECM include:

  • Borrower must be at least 62 years old;

  • The home must be your primary residence;

  • You need to have around 50% equity (but more is better); and

  • You must demonstrate the financial ability to pay taxes and insurance, as well as the financial ability to keep your property in livable condition (HOA fees, maintenance, etc.).

A HECM is the only reverse mortgage insured by the federal government and guaranteed by the Federal Housing Administration (FHA). The current maximum loan amount is $636,150. Visit the FHA’s website for more info on the program.

Hopefully, you’re feeling a bit more receptive to the idea of a reverse mortgage at this point. Ah, but what if you currently have a regular mortgage? Well, then you must have a low mortgage balance that can be paid off at closing once the HECM is approved — thus the requirement of 50% or more equity in your home.

While there are pros and cons to consider (which we’ll cover in upcoming posts), here are two things you should know: 1) a HECM is a powerful financial planning tool and NOT simply a plan of last resort; and 2) a HECM may be one of the best ways to help guarantee a roof over your head for the rest of your life.

We know this is a big consideration with lots of implications — and definitely a few complications. Maybe you’ve heard not-so-great things about earlier loans of this type. The good news is that today’s application process has been re-designed to ensure you meet the requirements as well as fully educate you about your responsibilities.

Just like any other financial tool — investments, SPIAs, the ins and outs of Social Security payments — you need to evaluate your options and see if this works for your situation. Which brings us to the topic for our next post: reverse mortgage “math” no calculator required. Bring the plynty app with you!