Here at AgingOptions we’ve recognized for quite some time the fact that the home equity conversion mortgage – better known as an HECM or reverse mortgage – is a powerful financial tool which can be of great benefit to many qualifying senior homeowners. So we were intrigued when a column that appeared in late March on the Forbes magazine website made the exact same point. The title says it all: “Researchers Say Reverse Mortgages Deserve a Second Look.” Written by Forbes columnist Jamie Hopkins, this column makes a clear and common-sense case that a huge number of qualified homeowners who might benefit greatly from an HECM are ignoring this versatile and helpful option.
Hopkins writes about a symposium on housing wealth in retirement, hosted in Washington, D.C. just a few months ago. “What’s the deal with reverse mortgages?” Hopkins asks, expressing his own puzzlement over the fact that so many eligible homeowners seem unaware of the financial solution that is represented by their home equity. As Hopkins writes in the Forbes column, “A key takeaway from the researchers and policymaker presentations at the event was that reverse mortgages are underutilized by seniors today.” What’s more, the consensus among presenters at the symposium was that the HECM “can help provide added retirement funding security to Americans when used appropriately.”
Fewer than One Percent
Hopkins sounds perplexed as he writes in Forbes about this disconnect between the power of the reverse mortgage and the relatively tiny number of seniors taking advantage of them. “Perhaps the most interesting takeaway from the event was how little coordination is occurring between home equity and retirement security” among those homeowners who are presently retired. One presenter from The Urban Institute showed data suggesting that fewer than one percent of eligible homeowners are presently utilizing a reverse mortgage today, a number that frankly surprised us. “This weak uptake,” writes Hopkins in Forbes, “is despite research demonstrating that the number of people that would benefit from the product could be ten times higher.” The column goes on to suggest that many homeowners are still ignorant not only of the benefits of an HECM but also of recent changes that have improved safety and reduced costs. One symposium presenter from Columbia Business School, says Hopkins, “spoke about how recent changes to the HECM program added additional consumer protections aimed at keeping homeowners in the home for their life.” This same expert explained how changes in the reverse mortgage fee structure have improved the overall sustainability of this government-backed loan program.
But knowing about the benefits of an HECM and deciding how to use one in retirement planning are two different matters. “So how can reverse mortgages be used appropriately?” asks Hopkins. One way to use an HECM to support a more secure retirement is by allowing the homeowner to age in place. This can be accomplished in part by eliminating the regular mortgage payment, thereby improving the cash flow of the typical retiree and potentially helping their retirement portfolio last longer. The other side of the “aging in place” equation is preparing the home, so here at AgingOptions we support the idea embraced by many reverse mortgage borrowers to use some of the HECM proceeds to make their home more senior-friendly. This can be done by adding grab bars, upgrading lighting and fixtures, remodeling bathrooms and making certain the home offers single-level living space appropriate for an aging senior. For many homeowners this seems to us to be a prudent reason to tap into home equity. A reverse mortgage line of credit can also provide valuable peace of mind, particularly at a time when investments often prove volatile and seniors often have too little retirement savings to provide a sense of security.
“So what’s the bottom line?” asks Jamie Hopkins in Forbes. “Reverse mortgages,” he reminds us, “are a form of borrowing, so there is a cost. But, some of this cost comes with a benefit” in the form of government backing that keeps the homeowner off the hook should the HECM debt balance exceeds the home value at the end of the loan. Still, because these loans “have been subject to misuse and misconceptions,” says Hopkins, “far too many people today turn a blind eye towards the product. The program that exists today is less expensive and offers more consumer protections” than ever before. For these reasons, he says, “reverse mortgages deserve a second look because, when used appropriately, a reverse mortgage can help support a more financially secure retirement.”
Still, to quote the old Smokey Robinson song, “You’d Better Shop Around.” Here at AgingOptions we suggest homeowners age 62 and older who qualify should at least look into the power of a reverse mortgage, but we have two strong cautions. First, as with any financial tool, the HECM isn’t for everyone. Second, it’s vitally important that you talk to someone who knows this field inside and out and who will take the time to give you objective, professional advice