Top Five Reasons Why the Affluent Want a Reverse Mortgage
Reverse mortgages have the negative connotation that they are only for the seniors without other resources. Here are 5 reasons why the wealthy can use a reverse mortgage to enhance their estate planning.
1. Tax free distribution.
For every disbursement received from your retirement IRA, Sep-IRA, or 401K you will have an ordinary income tax due based upon your current tax rate. Alternatively, your reverse mortgage distributions to yourself are not taxable as income. This allows your current retirement assets to grow with re-investment rather than distribution until the mandatory distribution guidelines kick in.
2. Risk management against equity market swings.
If your favorite stock is sinking and you don’t want to sell, don’t. Rather you may want to buy more on the way down and use the reverse mortgage credit line to buy more or cover lower distributions to eliminate your pressure to sell.
3. Downsizing the household.
As we transition to our golden years, most would like a smaller home with less maintenance or upkeep and the ability to get away more for travel. When you sell your $900,000 home pay off a modest $200,000 mortgage and closing cost you net about $650,000 before tax considerations. You could buy the new smaller home for $650,000 cash and be in the same liquidity position. Or purchase for the $650,000 but put on a $200,000 reverse mortgage with a growing line of credit. Improve your liquidity and investment class assets by the $200,000 and still have no mortgage payment.
4. Optimize Social Security Benefits and retire on time.
With a reverse mortgage you can retire on time and delay the social security benefit start for the maximum payout formula. Use the reverse mortgage for distributions until you want to start up the social security for optimum benefits.
5. Start the legacy of your dreams.
Most estates and wills provide for some bequeaths to a favorite charity or two. What if you gave the donation to the charity while alive and had the ability to be a part of that mission? A reverse mortgage allows you to make the donation while living and reduce your income tax liability without having a monthly payment. Be part of your gift today rather than a plaque on the wall when your dead also called a tombstone.
Here are just some of the ways I have helped seniors with their estate planning goals employing the reverse mortgage toolbox. Home Equity Conversion Mortgage (HECM) is just that, the conversion of real estate equity to a new asset class. This new liquidity can be used for many reasons and scenarios. Further, this new asset is also part of the estate and distributed to the heirs when the time comes. In fact, I can show you how the reverse mortgage can help prevent acrimony among siblings and heirs at liquidation.
About the Author:
David Brown of Solvang, CA is Branch Manager for Hightech Lending, California’s second largest reverse mortgage loan originator. A reverse mortgage veteran and trusted advisor, David has assisted countless numbers of seniors with their HECM loan and written several published papers regarding strategic planning with mortgages. Contact David by phone at 805.686.2321 or online at www.AmericanSeniorUSA.com or email DBrown@HightechLending.com for questions and scenarios.