It might be in a less-than-convenient slideshow format, but mortgage website Bankrate recently complied a look at the ways that seniors could — and probably shouldn’t — use reverse mortgages.
After moving through a quick explanation of what a Home Equity Conversion Mortgage entails, Bankrate lists some uses for reverse mortgage proceeds, including paying off existing debt and paying for long-term medical expenses or home improvements that allow seniors to age in place.
The website also provides a quick rundown of financial-planning aspects of the HECM, such as setting up a reverse mortgage line of credit, delaying the receipt of Social Security benefits, or avoiding the use of other retirement assets. Curiously, Bankrate also quotes a reverse mortgage specialist who recommends using HECM proceeds to lower a borrower’s overall income for Social Security draw benefits.
“If your income’s over a certain amount, part of your Social Security gets taxed. If instead you’re drawing from your HECM, which isn’t taxable, you can keep your income under that threshold,” Maggie O’Connell of the Federal Savings Bank in Reno, Nev. told the publication.
The slideshow also features options that might make longtime reverse mortgage players cringe depending on the circumstances, such as using a HECM to gift money to children — which Bankrate only advises “if it doesn’t put the borrower at risk of running out of money during his or her own lifetime” — as well as using the proceeds to by an annuity.
“One use of a reverse mortgage loan that’s generally frowned upon is to purchase an annuity, a form of insurance that provides a monthly payment for the rest of a person’s lifetime in exchange for a substantial upfront premium,” the publication notes. “There are strict regulations to consider, and it’s risky to borrow money to invest in financial products.”
Take a look at the full slideshow at Bankrate.
Written by Alex Spanko