Barry Armstrong, a financial planner with Securities America, recently appeared on NECN to answer the question, What is a reverse mortgage?
“It’s a mechanism that allows people to continue to live in their home, where they raised their families, and where the wanted to retire, and they are able to take equity out of their home in three different ways: they can get a line of credit, they can get a lump sum to pay off some existing bills, or they can get a monthly annuity payment from their home,” Armstrong explained.
He went on to say that reverse mortgages have gained strength during the past five or six years as a result of the poor economy, and cited a story of a widow electing to take out a reverse mortgage rather than sell her home after all her savings had been exhausted on her late husband’s health care. “That’s a good use of the reverse mortgage,” he said.
However, he added that it would be a bad use of a reverse mortgage to spend the money frivolously or on vacation plans, or if the borrower still had money in a 401(k).
“It’s really meant, in my perspective, as a last resort; when you run out of money, you use a reverse mortgage,” he said.
Armstrong called interest rates on reverse mortgages “very competitive,” and also mentioned a recent development that has served to cut down on closing costs: the introduction of the HECM Saver Program.
“It basically made the cost of a reverse mortgage about equal to refinancing your house on a traditional mortgage. The high cost associated with a reverse mortgage has gone way down,” said Armstrong.
Written by Alyssa Gerace