{5:30 minutes to read} In Part 1 of our interview with Warren Goldberg, we discuss some of the misconceptions that people have about reverse mortgages. In Part 2, we will go into more depth about the rules surrounding reverse mortgages, such as who can get one, age minimums, and how borrowers can benefit.

Michael Fliegelman:

I think the perception most people out there have is that this is a last resort.

As many people accumulate money for retirement, a lot of that money is embedded in the equity in their home. What are the minimums, how can a consumer benefit, and how can we help change the perception so they can unlock that equity and potentially enjoy a better lifestyle because of a reverse mortgage?

Warren Goldberg:

Education is key. Like anything else, the more a person knows and understands, the better they can make a rational and informed decision. A reverse mortgage is a financial tool, just like any other financial tool. To be able to qualify for a reverse mortgage, there are essentially two prerequisites: The homeowners must be 62 years of age or older, and they must have a significant amount of equity in their house.

They do not have to own the house free and clear; they can have a balance on their mortgage or potentially a line of credit, but they must have significant equity in the house to be able to utilize a reverse mortgage. Unlike a forward mortgage, there is no requirement pertaining to having good credit, having a job, or having a certain amount of income, because, while you can make payments on a reverse mortgage if you wish to, payments are not required. In fact, most people do not make payments on the reverse mortgage; they simply utilize this conversion of the equity in the house to cash, to be able to pay their monthly expenses and enjoy retirement like they wanted to but didn’t think they could because maybe they didn’t accumulate enough savings.

One final question: If I have a home, free and clear, no mortgage, worth $750,000. Approximately how much money can a 65- or 70-year-old individual take out? Secondly, do they take it out in a lump sum, monthly check, in a line of credit? How does it work in that kind of fact pattern?

Well, the banks utilize a formula that works similar to actuarial tables in life insurance. The amount that can be borrowed is based upon the projected life expectancy of the borrower. There are caps on how much can be borrowed, so depending on the value of the house and these actuarial tables, they can borrow up to a certain percent of the value of the house, not exceeding the FHA limits, which are $625,500.

They can access this money in a number of different ways. The can even utilize a combination of these different ways depending on their needs:

  • Pull the money out as a lump sum. Some people may want to pay off the balance of their existing mortgage.
  • Monthly stipends. Similar to collecting a Social Security check every month, they would get a check from the lender for the amount they decide to receive.
  • Line of credit. At the closing, whatever additional or unused equity remains can be put into a line of credit that can be drawn from anytime in the future.
  • If a borrower decides to utilize one of these options—most specifically the monthly stipend—it is not counted towards income so is not a taxable event. This is strictly the borrower converting the equity in their house to usable money, so it’s not considered income by the IRS or the state.

    Sometimes we face decisions, such as moving from New York to Florida, so we can have a better environment in which to live. But because of that, we will no longer be near kids and grandkids. The potential to use a reverse mortgage could allow you to make a different decision and remain without having to make any payments or pay taxes.

    Warren, I want to thank you very much. I have known Warren and his company, Mortgage Wealth Advisors, for many years. If you need anything regarding reverse mortgages, he would be a good resource to contact and talk to.

    Registered Representative offering Securities through American Portfolios Financial Services, Inc. (APFS) Member FINRA/SIPC. Investment Advisory Services are offered through G&G Planning Concepts, Inc. which is not affiliated with APFS. Strategic Wealth Advisors Network and Gassman Financial Group are not affiliated with APFS.

    Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.

    Michael Fliegelman, CLU, ChFC, AEP, RFC
    Founder / President, Strategic Wealth Advisors Network
    (631) 262-9254
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    Brokerage Director, MassMutual


    Please note that the information being provided is strictly as a courtesy. Always confer with your CPA prior to attempting to take any tax deduction. Michael Fliegelman is not a CPA, nor should the contained be considered tax “advice”.

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