It’s always a puzzle to us when some people seem to have the solution to their financial problems in retirement right under their noses – yet they fail to take advantage of the situation. Whether out of fear, misinformation, or sheer inertia, they shy away from the one thing that seems perfectly suited to their needs.
“What’s the Deal with Reverse Mortgages?”
We’re talking about a home equity conversion mortgage – better known as an HECM or reverse mortgage. While we know that a reverse mortgage isn’t right for everyone, it’s still a powerful financial tool which can be of great benefit to many qualifying senior homeowners, yet most seem reluctant to investigate the potential of an HECM. That’s why we wanted to revisit this column that appeared in late March on the Forbes magazine website which made the exact same point, namely that reverse mortgages deserve a second look. Written by Forbes columnist Jamie Hopkins, this column states a clear and common-sense case that a huge number of qualified homeowners who might benefit greatly from an HECM are ignoring this versatile and helpful option.
“What’s the deal with reverse mortgages?” Hopkins asks, expressing his own bewilderment over the fact that so many eligible homeowners seem unaware of the financial solution that is represented by their home equity. He attended a symposium on housing wealth in retirement in Washington, D.C. in early 2018, and as he writes in the Forbes column, “A key takeaway from the researchers and policymaker presentations at the event was that reverse mortgages are underutilized by seniors today.” The consensus among these well-informed presenters at the symposium was that the HECM “can help provide added retirement funding security to Americans when used appropriately.”
Fewer than One Percent
Voicing his puzzlement, Hopkins writes in Forbes about the disconnect between the power of the reverse mortgage and the relatively tiny number of seniors taking advantage of them. “Perhaps the most interesting takeaway from the [symposium] was how little coordination is occurring between home equity and retirement security,” he says. Data from The Urban Institute suggests that fewer than one percent of eligible homeowners are presently utilizing a reverse mortgage. “This weak uptake,” writes Hopkins in Forbes, “is despite research demonstrating that the number of people that would benefit from the product could be ten times higher.” The column suggests that many homeowners are still ignorant not only of the benefits of an HECM but also of recent changes that have improved safety and reduced costs. One symposium presenter from Columbia Business School “spoke about how recent changes to the HECM program added additional consumer protections aimed at keeping homeowners in the home for their life.” Changes in the reverse mortgage fee structure have also helped make this government-backed loan program more sustainable.
But knowing about the benefits of an HECM and deciding how to use one in retirement planning are two different matters. “So how can reverse mortgages be used appropriately?” asks Hopkins. One way is to use an HECM to allow the homeowner to age in place. This can be accomplished in part by eliminating the regular mortgage payment, thereby improving cash flow and helping their retirement nest egg last longer. Here at AgingOptions we support the idea embraced by many reverse mortgage borrowers to use some of the HECM proceeds to make their home more senior-friendly, adding grab bars, upgrading lighting and fixtures, remodeling bathrooms and making certain the home offers single-level living space. This seems to us to be a prudent reason to tap into home equity. A reverse mortgage line of credit can also provide valuable peace of mind, particularly at a time when investments often prove volatile and seniors often have too little retirement savings to provide a sense of security.
Stop Turning a Blind Eye Toward Reverse Mortgages
“So what’s the bottom line?” asks Jamie Hopkins in Forbes. “Reverse mortgages,” he reminds us, “are a form of borrowing, so there is a cost. But, some of this cost comes with a benefit” in the form of government backing that keeps the homeowner off the hook should the HECM debt balance exceed the home value at the end of the loan. Still, because these loans “have been subject to misuse and misconceptions,” says Hopkins, “far too many people today turn a blind eye towards the product. The program that exists today is less expensive and offers more consumer protections” than ever before. For these reasons, he says, “reverse mortgages deserve a second look because, when used appropriately, a reverse mortgage can help support a more financially secure retirement.”
Still, to quote the old Smokey Robinson song, “You’d Better Shop Around.” Here at AgingOptions we suggest qualified homeowners should at least look into the power of a reverse mortgage, but we have two strong cautions. First, as we said above, the HECM isn’t for everyone. Second, it’s vitally important that you talk to someone who knows this field inside and out and wh0 will take the time to give you objective, professional advice – someone like Ted Butler. He is a frequent guest on our AgingOptions radio program, and if you’ll contact us we can put you in touch with Ted, who will gladly answer all your reverse mortgage questions.
When it comes to retirement questions, the perfect place to get answers to questions you may not have even known you needed to ask is at a free LifePlanning Seminar with Rajiv Nagaich. At these popular events you’ll learn how traditional retirement planning can leave you and your assets dangerously exposed to disaster when age-related problems arise. You’ll also discover how to protect your assets, avoid becoming a burden to your loved ones and escape the trap of unplanned, unwanted institutional care through the power of a LifePlan. Financial, legal, medical, housing and family issues can all be integrated into one seamless retirement strategy. Learn more by accepting our invitation to join Rajiv Nagaich at one of our popular seminars. You’ll find all the details here – then sign up on line or by phone.
We’ll look forward to meeting you soon!
(originally reported at www.forbes.com)