Using a HECM Reverse Mortgage to Delay Taking Social Security

April 16, 2015

For most seniors, waiting until age 70 before collecting social security, as opposed to taking it at the minimum age of 62, is an excellent investment. A typical senior who could draw $1350 a month at age 62, would see the draw increase by more than 7% a year, reaching $2376 at age 70. The challenge is to avoid impoverishment during those intervening years. If that is your situation and you have enough equity in your home, you can use a HECM reverse mortgage to fill the income gap. This article explains how to do it, using the professor’s HECM calculator.

Step 1: Enter Information About You and Your House

You must be 62 or older to qualify for a HECM. The period for which you are supplementing your income is the period between your current age and when you reach 70. If you just turned 65, for example, you will look for an income supplement for 5 years.

At Step 1, enter the 7 pieces of information requested. For “Expected Years in House,” enter the period for which you need an income supplement. Click on “Continue to Step 2”.

Step 2: View Your Payment Options

At this point, you see how much you can draw either as cash, credit line, or monthly payment, but only the last is relevant to you now. The monthly income shown for the period until you become 70 is the maximum available, which hopefully is much more than you will need. If you draw that amount, you will have no further HECM borrowing power when you reach 70.

Scroll to the bottom and click on “Select Adjustable Rate.” You can ignore the fixed-rate option because monthly payment plans are available only on adjustable-rate HECMs.

Step 3: Select Your Payment Options

On this page, you see how drawing larger or smaller monthly amounts during the period until you reach 70 affects the amounts available to you in later years.

Enter the period until you reach 70 as the “Monthly Payment Term”, and the amount you think you will need as the “Monthly Payment”. Note the credit line that remains. If you take the maximum monthly payment possible, the credit line will fall to zero and stay there. But if you leave a positive amount in your line, that amount will grow until such time as you draw on it.

When you have found the best balance between present and future needs, Click on “Select Lender and Price” at the bottom of the page.

Step 4: Selecting the Best Deal

At this point, you select from among several lenders, and several different versions of the HECM carrying different origination fees and interest rates. Your main focus should be the debt and t he unused credit line you will have when you hit 70 and the monthly payments cease. If there is a high likelihood that you will be selling the house at that time, you will want the HECM that has the smallest debt. If it is more likely that you will stay in the house after hitting 70, you probably will want the HECM that will have the largest credit line at that point.