The new profile of reverse mortgage borrowers are couples aged 62 or 63 who are using the loan as a way to bridge financing for retirement, according to a recent Reuters article.
It’s a pretty big change from recently-widowed 75-year-olds who were previously the most common applicants, and these newly-eligible borrowers often pay off the loans more quickly than their older counterparts, Reuters cites Peter Bell, president of the National Reverse Mortgage Lenders Association, as saying.
They use them as a transitional way to fund retirement, says Bell in the article, by living off of reverse mortgage income early in their retirements, and then selling their homes, paying off loans, and downsizing.
“That may make sense for a boomer generation that is said to hold half of its net worth in home equity,” says the article.
However, it goes on to warn, it can be a costly strategy because of upfront fees, and borrowers should think long-term. If they only plan on having the loan for a year, and then selling the house, they’ve essentially paid a 10% interest rate.
Other advice offered in the column include considering a HECM Saver, which minimizes closing costs; not taking the non-borrowing spouse off the title; considering alternatives; and not taking out a reverse mortgage for investment purposes.
Read the full article here.
Written by Alyssa Gerace