Reverse Mortgage – Is it the name, or the actual loan product that causes people to shy away? Apparently, it is the name. When presented with the description of what a reverse mortgage can do vs a traditional HELOC on which payments must be made, the vast majority of people chose the reverse mortgage. They were surprised when they learned the name!
For the average American couple at age 65, home equity makes up more than two-thirds of their total wealth, according to 2011 U.S. Census data. More specifically, the median net worth for married couples age 65 and older is $284,790. Of this amount, $192,552 is in home equity, and $92,238 is in non-equity assets, including IRAs, other savings, and personal property. These asset values alone imply that retirees may be facing a retirement income shortfall. American College of Financial Services professor, Jamie Hopkins, emphasizes improvements made to the reverse mortgage program in recent years, proclaiming it to be “far less expensive and more economically secure than anything that existed before.” (Journal of Financial Planning, Hopkins, J. 2017)
If many Americans who may be facing a retirement income shortfall have much more home equity than IRA or 401(k) savings, it seems that incorporating home equity into a retirement income plan would make sense, says Hopkins.
In part, reverse mortgages should be considered because many retirees remain in their home in retirement, and need more retirement income. Another reason to look at a reverse mortgage is that through the line of credit and other withdrawal options, a reverse mortgage can be accessed when the need arises, and can be used to meet many retirement income objectives.
The government has made frequent adjustments to the regulations and program over the past decade. In the past few years, the regulations have focused on streamlining the product to make it simpler and less expensive. Additionally, protections were added for non-borrowing spouses, and a financial assessment is now required to ensure that any borrower will be able to meet his or her other required home maintenance expenses during the course of the reverse mortgage. (Ibid.)
Nobel Prize-winning economist Robert C. Merton, a finance professor at MIT’s Sloan School of Management, stated that Americans have wrongly steered clear of reverse mortgages (Blumenthal 2015). Several studies have shown the benefits of incorporating reverse mortgages in a retirement income plan.
Contact your local Reverse Mortgage Specialist to learn if a reverse mortgage would be helpful to you.
This article first appeared in My Primetime News, January 29, 2018.