A borrower considering a reverse mortgage should keep in mind particular scenarios regarding when and under what circumstances they choose to engage in such a loan, as well as any specifics of their own financial situation. It’s an idea shared in a recent column published by US News & World Report, aimed at determining when a reverse mortgage is a good or bad idea for a particular senior.
After outlining the basics of the Home Equity Conversion Mortgage (HECM) sponsored by the Federal Housing Administration (FHA) as well as some exclusive options, the column then goes into detail, including reverse mortgage costs for borrowers, as well as various uses and disbursement options that exist.
The column then discusses arguments about when it’s a good or bad idea to proceed with a reverse mortgage, both focusing on individual circumstances. For example, it would be a good idea to consider a reverse mortgage for those who wish to stay at home; who wish to preserve their heritage; and for anyone planning their future while staying at home.
“You can spread closing costs over a longer period and also rely on payments from HECM to pay for current and/or emergency expenses,” the column says. “A HECM could also help you pay for renovations to modernize your home to age in place.”
In terms of “preserving your wealth,” this boils down to avoiding sequence-of-returns risk, the column explains.
“If you have other non-domestic assets – like an investment portfolio – funds from a HECM can cover day-to-day costs while the investments remain intact and can grow,” it reads. For those planning for the future, a reverse mortgage may simply be more reliable than other options.
“Don’t think of HECM as a last resort – it can be a ready-made source of credit that you sign up for at age 62 and don’t use until you really need it for years later,” the column reads. “Unlike some other sources of financing, like a home equity line of credit, a HECM will always be there.”
For situations where a reverse mortgage might be a bad idea, the column outlines three additional scenarios: If you are moving soon, then getting a reverse mortgage would basically be a bad option since the loan would become due and payable as soon as you leave the home with the HECM privilege. A reverse mortgage would also be a bad idea for anyone ill-equipped to manage their money and for those who have not planned for the effective use of loan proceeds.
Read the US News & World Report column, which also features statements from RMD 2021 Chnagemaker Shelley Giordano and Dr. Wade Pfau.