If you are a homeowner the increase in home values over the years means likely have a significant amount of equity in your home. And, while it’s a great knowing it’s there it can also be concerning to know it is effectively dormant, earning 0% interest!
 

Have you asked yourself?
 

* Is there any way I can leverage this dormant equity and turn it into cash to help fund my retirement?
* I’d like to quit working to relax, travel or start a new hobby or business but need to keep working because I have a mortgage?
* Does it make sense to have other debts, like car or student loans with large balances and monthly payments when there are ways to pay them off with some of my home equity, and at the same time lower my monthly expenses?
* What are the risks and rewards of accessing some of the dormant equity in my home for investment or to pay off debt?
* After working hard all my life shouldn’t I enjoy the fruits of my labor and foresight in buying a home?
* How will extracting cash from my home’s affect my estate?
 

This book answers those questions, and more. It also contains what financial planners call “the best kept secret in real estate.” Once you understand its power you’ll be awe struck!
 

This book describes two exciting options that you may not be aware of.

These two are HomeSafe Seconds and HECM’s. They are a great way to convert some of the dormant equity in your home into spendable cash.
 

HECM’s are first mortgages that are most commonly used as a line of credit with an automatic annual increase which is contractually guaranteed.
 

A HomeSafe Second is a fixed interest rate second mortgage that requires no monthly payments and enables you to keep your low interest rate first mortgage.
 

Both products require no monthly payments – the interest simply accrues. They are a great way to manage retirement risk and cash flow.

Neither have any restrictions on the use of the cash. You could pay off debt, retire early, travel, buy a new car, help a child or grandchild, access some of your estate early or buy a home. How big can you dream?
 

According to IbisWorld.com (industry analysts formed in 1971) the number of HECMs in 2022 were expected to increase by 12.5% in the USA alone. That number is expected to grow rapidly and I predict HomeSafe Seconds will have the same rapid growth.
 

Retirement and Financial Planners often advise HECM’s and HomeSafe Seconds to their clients as a strategy to minimize or eliminate taxes on 401K or IRA withdrawals. They are widely considered one of the best financial planning tools available.
 

Whether you’re a mortgage professional, homeowner, financial or retirement planner, tax professional or realtor, this book will help you better understand HECM’s and HomeSafe Seconds. an answer to this item.

A HECM is a first mortgage that allows you to convert some of the stored “dormant” equity in your home into spendable cash. The amount you qualify for depends on the age of the youngest borrower and the value of your home. You can use the cash to pay off a current first mortgage with no monthly payments, and, depending on what you currently owe you’ll likely walk away with a sizeable amount of cash at close of escrow as well.
 

Example, you owe $200K on your first mortgage and qualify for a $500K HECM. The HECM lender pays off your current lender ($200K) and provides you with an additional adjustable interest rate $300K line of credit.
 

A HomeSafe Second is very similar, except that it is a second mortgage. This is good news if you have a low interest rate first mortgage you’d like to keep. It’s a great alternative to a traditional Home Equity Line of Credit (HELOC) because it is a fixed rate.
 

Neither product requires monthly payments which is huge. The interest simply accrues. That said you can optionally make repayments if you wish. The minimum age for HECM’s is 62 and 55 for HomeSafe Second.
 

It should be noted that both products are non-recourse loans. This means that in the event of foreclosure the only recourse the lender has is the subject property. So even if the lender is owed more than the home is worth they can’t go after other assets like stocks, savings accounts or other real estate.
 

The traditional method of accessing home equity: Home Equity Lines of Credit do not come with this benefit. This is one of the reasons why HECM’s and HomeSafe Seconds are regarded as the safest loans on the market.
 

As you know, traditional first mortgages and HELOC’s require a monthly payment, and the principal portion, where applicable, flows back to your home’s equity. But for most borrowers this is “dormant equity”. A HECM or HomeSafe Second can help you convert some of it into cash.  

Unfortunately HELOC’s have many drawbacks, require monthly payments, and are riskier than HomeSafe Seconds. We’ll look at a side by side comparison later.

One thing that has come to my attention over the years, is that when evaluating HECM’s or HomeSafe Seconds some homeowners look at one side of the coin only – the loan balance increases. While this is important to note, it could be construed as “glass half empty” viewpoint. 

The other side of the coin – the savings in monthly expenses - could be used to conserve savings, brokerage, or taxable retirement account balances. In fact, if the cash is used wisely the homeowner and their heirs, could preserve more cash than they interest they incur by using this strategy.

1. No monthly payment required. Dramatically improve your cash flow   
2. Make OPTIONAL repayments if you wish to. You have total flexibility and control
3. Retain the title to your home. Feel safe in the knowing nothing changes
4. Refinance or sell if ever you want to. Plans change or life happens - no problem
5. Heirs can sell or refinance the home. No different to any other mortgaged home
6. Increased time frame for heirs to sell. Longer than allowed with a conventional mortgage
7. Reduce your income taxes
8. No restrictions on the use of the cash. Spend it however you wish (see next section for ideas)
9. Non-taxable

     ALL the benefits of HECM's (though a different product.See previous section. And to get your creative juices flowing here's some ways you could use the cash:

1. KEEP your current low interest rate first mortgage
2. Travel   
3. Buy a second home
4. Start a new business or hobby
5. Quit your job and retire
6. Fund a child or grandchild's education 
7. Invest**
8. Help a child or grandchild buy a home by accessing some of their inheritance now so they can avoid renting*** 
9. Spend time with friends and family
10. Remodel or repair home
11. Add an Accessory Dwelling Unit to your home for parents, children or for rental income

The cash you extract is non-taxable, and you may be able to save on taxes by using some of it for living, and other expenses, while avoiding taxes on retirement withdrawals or capital gains.
 

** Some savvy homeowners invest the cash to produce monthly, spendable income. And, because there are no repayments on HECM’s or HomeSafe Seconds this improves their monthly cash flow dramatically.
 

*** If you have children, grandchildren or other heirs who will eventually inherit your assets why have them rent when you could give or lend them cash now to buy a home? You could give or loan them a 20% down payment. This would mean no mortgage insurance and a smaller mortgage payment meaning much  smaller monthly expenses than if they put down say 3%.

    The potential downsides of HECM's and HomeSafe Seconds are as follows:

1. Not a short term solution. If you are thinking of selling your home within a couple of years a HECM or HomeSafe Second might not be for you
2.  Potential Loss of Government Assistance
   You may obtain a sizeable cash sum from a HECM which could cause you to lose some low-income public assistance like Medi-Cal, Medicaid or SSI
3. Restrictions on Eligibility. Only a primary residence is eligible. Second homes do not qualify. The youngest borrower has to be at least 62 years old to qualify (55 for lender proprietary products).