As a lot of people found out in 2008 when we suffered the sub-prime crisis and subsequent Wall Street meltdown there are things that can happen in the future that you cannot predict that can seriously impact your retirement plan. Should such a debacle provide you with a challenge you have to improvise and make use of the resources that are available to you, and you may have to adjust your expectations. One of the keys is to be aware of all the options that are available to you, and if you own your home outright or have significant equity in it one of these is the Home Equity Conversion Mortgage.
The HECM is the government backed reverse mortgage that is fully insured and supported by the United States Department of Housing and Urban Development. There are no income requirements, and there are no credit requirements; if you are 62 years of age, have significant equity in your home, and use the object property as your primary source of residence you are qualified. If you do close on a HECM you receive payments from the lender either monthly or in some other increment, in a lump sum, or as an open line of credit. In return the lender receives equity in your home.
The risks are minimal. Since no payments are expected you can’t default so you can’t be foreclosed upon. You are required to make property tax payments and keep the property in reasonable condition, and if you fail to do so the loan can be called in early.
When you die or when you choose to move from the residence the loan becomes due. You or your heirs can then sell the property and use the proceeds to pay off the balance of the loan if you choose to go that route, or you can pay off the loan using some other form of funding and keep the house.
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