RM as financial planning tool

Reverse mortgages used to be considered by many financial planners as a loan of last resort. But nowmore andmore of these professionals are embracing reverse mortgages as another tool in their client’s portfolios. Rather than steadily depleting the balance of a stock portfolio or retirement account, a reverse mortgage can create a monthly income stream or a line of credit that can be used for any purpose, such as home modifications, travel to visit family, go on a long awaited dream vacation, or to just have the peace of mind of an available reserve for emergencies.

The income stream can be set up for as long as you continue to reside in your home as your primary residence. This is called the “tenure” plan. If you need more money each month than this affords, you can choose a term plan with larger pay- ments. These payments will stop after the agreed term, but you can continue to live in the house with no mortgage payment as long as it is your primary, owner-occupied residence. Keep inmind that the proceeds from a reverse mortgage are not taxable as income, since the loan will eventually be repaid.

One myth that still lingers is the idea that the bank automatically gets your house at the end. In fact, the borrower or borrowers continue to own the house and the heirs can either sell the home or refinance it to retain the property in the family. Once the balance of the reverse mortgage is repaid, the remaining proceeds from the sale stays with the heirs. In the event the mortgage balance exceeds the value of the home, the mortgage insurance fund covers any deficiency owed. Plus, the FHA Home Equity Conversion Mortgage is a non-recourse loan to begin with. The borrowers are not personally responsible for repayment of the debt.

Now for the Northern New Mexico twist. Local families often consider Grandma and Grandpa’s house to be the “family’s” inheritance. Often, the older family members won’t consider putting a mortgage on the family home and will instead sometimes struggle to get by, even if a reverse mortgage could improve their circumstances considerably. I sat at a table with all the family members in La Puebla and it was only after hours of discussion that the grandparents agreed to the reverse mortgage. The funds were needed to bring in outside care to help keep them in their home. In the end, the reverse mortgage did what was intended.

John Ruybalid is a reverse-mortgage specialist withMortgage Partners – Santa Fe. He has been originating residential mortgages in Santa Fe since 1985. John may be reached at 505-690-1029. His website is www.nmreversemortgage.com.