Following years of negative reports that focused on the downsides of this industry, it seems that reverse mortgage popularity is finally on the rise. A recent NY Times report concurs this evolving, positive mantra behind these HECM loans, with experts citing that home equity is an increasingly important asset to consider during the retirement process because it can serve as a powerful financial vehicle that retirees can access.
As more clout is added to the prospect of using a reverse mortgage for retirement, a few benefits have taken center stage. Namely, that a reverse mortgage can be accessed from age 62 or older, when many retirees need access to additional funds to secure their quality of life, and that these home loans can eradicate the monthly payment of the original mortgage (because they are not paid until after you die), freeing up further cash flow.
Provided the borrower is the primary occupant of the house, they can access these loans without any income or credit criteria needing to be met; given that they are in adherence to the recently passed and new reverse mortgage rules. These rules help resolve some of the previous pitfalls that were associated with these loans, helping them regain popularity. For instance, borrowers need to seek third-party credit counseling prior to taking out the loan, and they have to demonstrate that they can manage home upkeep and pay property taxes and insurance.
As retirement needs expand, and as people live longer lives in the U.S., many retirees are simply unprepared for the financial expenses that lie ahead, even if they have diligently saved. For example, pensions are now 401(k)s and have far fewer benefits and much greater risk. Such drastic shifts have made it less likely that most people will even be able to afford to retire in today's financial climate.
Experts say that reverse mortgages may be the retirement answer during the modern era. The Commission on Retirement Security and Personal Savings has stated that there's $12.5 trillion in home equity in the U.S. as compared to $14 trillion in retirement assets, noting along the way that most people are still falling short of the necessary retirement funds they'll require to live a comfortable lifestyle in the not so distant future.
With convenient options of taking a line of credit, lump sum or monthly payout, a reverse mortgage also enables a borrower to control how they access these funds. For example, a line of credit can be accessed only when needed, with interest only accruing on the funds borrowed. This line can also grow over time as the loan matures. In par with the increasing popularity of these home loans is the consumer rhetoric. Recent surveys have found that 14% of retirees are considering them.
Indeed, reverse mortgage popularity is on the rise, and for ample good reasons.