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 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. This implies 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.” Incorporating home equity into a retirement income plan would make sense, says Hopkins. (Journal of Financial Planning, Hopkins, J. 2017)
Many retirees remain in their home in retirement, and also need more income. Through the line of credit a reverse mortgage can be accessed when the need arises, and can be used to meet many retirement income objectives including providing an additional income stream.
The government has made frequent adjustments to the regulations over the past decade. In recent years, the regulations have focused on streamlining the product, making it less expensive, adding protections for a non-borrowing spouse, and requiring financial assessment to ensure that any borrower will be able to meet his or her 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.
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