Blog content updated on 7/7/2022
According to a recent brief from the Boston College Center for Retirement Research (CRR), middle-class Americans aged 65 to 69 have more or equal wealth in their home equity than in their financial assets. Yet few retirees are taking steps to utilize this significant asset to help them finance their retirement.
Aging boomers probably remember Rodney Dangerfield as the comedian who lamented, “I don’t get no respect.” Are reverse mortgages the modern equivalent in the retirement planning world?
If so, that may be changing, as explained in this CBS Money Watch article. More and more older adult homeowners and their financial advisors are realizing that a reverse mortgage can be a helpful part of a comprehensive retirement plan to help people meet their financial goals.
So, why the lack of respect?
In the early years of the government-backed program for the Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, the actions of some overly aggressive lenders garnered some bad press and sparked the spread of misconceptions about the program. Here are the most common myths—and the corresponding truths:
The bank does NOT own your home.
When you take out a reverse mortgage, you keep the title to your home in your name as long as you meet the terms of your loan.
You can leave your home to your kids.
Selling the home is one way to pay off the reverse mortgage—but if your heirs want to keep the home in the family, they can arrange to pay off the loan and keep the house. If they do sell the house to pay the loan off, they keep any leftover funds. Learn more about what a reverse mortgage means to your inheritance, here.
The lender can’t “kick you out” at any time.
Reverse mortgages were designed to help people remain in their homes. Monthly payments are not required, they’re optional. As long as you keep up with property taxes, homeowners insurance, and home maintenance, you can’t be evicted or foreclosed on by your lender. The loan only comes due when the last borrower passes away or leaves the home permanently.
It’s not “just for people who are desperate.”
According to the National Council On Aging, “Reverse mortgages are best used as part of an overall retirement plan, and not when there is a pending crisis.”* From paying off an existing mortgage, to delaying Social Security benefits to get the full amount, to taking out a line of credit as a financial “safety net,” a reverse mortgage gives you options. Just see all the ways today’s retirees are leveraging reverse mortgage funds on our blog, here.
They’re not prohibitively expensive.
Reverse mortgages don’t require large out-of-pocket expenses. Mortgage loan origination costs and interest rates are comparable to traditional mortgages. There are FHA insurance costs that some forward mortgages don’t require, but the benefits outweigh the cost. Lender closing costs and fees can be financed into the loan balance, so there are no large upfront costs. To learn more, check out our blog on reverse mortgage costs & fees.
You won’t lose your Social Security and Medicare.
Those benefits are generally unaffected by a reverse mortgage—however, need-based programs such as Medicaid may be, so you’d need to manage how much you receive per month from your reverse mortgage to remain eligible. Consult a qualified financial advisor to learn how a reverse mortgage may impact your eligibility for some government benefits.
Over the years, the reverse mortgage industry has dramatically changed for the better. The Federal Housing Administration increased consumer protections, including a financial assessment review to weed out unsuitable candidates, and significantly lowered costs to make reverse mortgages accessible to more borrowers.
So, how can you use a reverse mortgage?
The short answer is: any way you choose. Since the HECM program was introduced in 1989, more than a million American families have used a reverse mortgage to tap into their home equity as another source of funds in retirement. Here are some of the most common uses:
- Pay off your current mortgage and redirect the money you used to pay in monthly payments to help pay everyday living expenses, medical costs, and other debts.
- Make home repairs and upgrades to help you remain in your home and “age in place.”
- Open a growing line of credit for any future needs to help protect against unexpected expenses.
- Use the extra cash to delay taking Social Security benefits as long as possible, so you can get the maximum amount available.
- Avoid tapping into invested assets to let them grow, so they last longer—and provide additional funds when markets take a downturn.
- Use the proceeds to help out family members financially, or help pay for your grandkids’ education.
- Buy a new home that’s closer to your family, or travel to visit them more often.
What makes now a good time to look into a reverse mortgage?
With today’s record-high home values and record-low interest rates, there may not be a better time for retirees to maximize the available proceeds from reverse mortgages.
To read the full CBS News Watch article about reverse mortgages, click here.
To learn more about reverse mortgages, talk to the experts at Longbridge at 855-523-4326—or fill out the form on this page for a free info kit.