While a Home Equity Conversion Mortgage (HECM), or reverse mortgage, can be a smart financial tool for those needing to supplement their retirement income, its possible ability to protect a well-funded nest egg is easy to overlook.

As retirement approaches, even those with a solid financial plan may fear the damage an ill-timed market downturn can do to their investment portfolio. However, the strategic use of a HECM could provide critical protection worth considering.

Buying Time

One of the ways a HECM can become part of your retirement strategy is by using the funds from your home equity to maximize the benefits you’ve earned over the years. A reverse mortgage becomes an option at age 62, but eligibility for full retirement benefits may still be several years away. Tapping into your home equity could be one strategy to bridge the gap.

Since it’s impossible to predict precisely what the stock market will do when retirement arrives, the added availability of a reverse mortgage may take the sting out of a poorly timed bear market. Rather than having to withdraw your investments while their value is down, the funds from a HECM could support your retirement and buy you time to recover your losses.

Freedom of Flexibility

Even absent a diving economy, a reverse mortgage could provide additional flexibility to maximize your investments. It could offer an alternative source of emergency funds that won’t disrupt your financial strategy. Or it could be used as an added safety net that gives you the confidence to pursue more aggressive investment options that could pay off handsomely down the road.

Keep In Mind

Regardless of the reason for the HECM, a reverse mortgage borrower will need to meet all the requirements of the loan, such as maintaining the property as a primary residence, paying all relevant taxes and insurance, and keeping the home in good shape.  

As you plan for your upcoming retirement, be sure to discuss with advisors the potential that a HECM could play an essential role in securing your future. And consider reaching out to an Open Mortgage Loan Originator for additional details about your reverse mortgage options.

Things to know about Reverse Mortgages:

  • At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
  • Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees
  • The loan balance grows over time and interest is charged on the outstanding balance
  • The borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home
  • Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment

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