CNBC: How To Do a Reverse Mortgage Right—Or Not

Despite representing  an “alluring” proposition for those looking to increase their cash flow during retirement, CNBC outlines some considerations for borrowers seeking a reverse mortgage. Among the advice: put it off, evaluate fees, consider different reverse mortgage types and consider health care needs. 

Additionally, the article, originally written by the Associated Press, warns against taking a lump sum payout and delaying the use of a reverse mortgage until later in retirement. 

CNBC writes: 

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The loan and fees are due once all parties listed on the deed die, or the home is vacated for 12 straight months. The home is usually sold, and the proceeds from the sale are used to pay off the loan, plus interest and fees.

The interest on the loan balance is typically calculated monthly and accrues over time. So, if you elect to receive regular payouts, for example, the amount you owe, plus interest, grows. When the loan is repaid, the lender also collects all the compounded interest.

Here are six tips experts recommend when considering whether to get a reverse mortgage:

1. Put it off: Even though homeowners can qualify for a reverse mortgage as early as age 62, experts suggest putting it off as long as possible.

The longer you wait, the more you can borrow against your equity. You also stand to save more money on interest if you put off the timing of the loan or when you start receiving payments. Since, the longer the loan period, the more interest adds up…..

View the entire article at CNBC.com.

Written by Elizabeth Ecker

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  • The wisdom in the CNBC article is missing.  

    As to more proceeds by waiting, 62 year olds can be caught by still lower home values or higher interest rates.  Many of us have seen this happen to many potential borrowers.

  • Mr. Parker,

     

    There is little doubt you are
    sincere and well meaning but you are overstating the case. 
    It is not always a mistake to use managed money over what you call “dead
    money… with no payment.”

     

    I believe those who had their
    money “managed” by Mr. Madoff, Mr. Stanford, or the trustees of the Enron stock
    retirement plan would disagree with you as would the beneficiaries of the
    Baptist Fund of Arizona.  Ask the
    beneficiaries of the pension funds whose plan asset managers (“PAM”) using the
    prudent PAM rule acquired significant holdings in dot coms, derivatives, and
    MBSs.  (By the way, the value of those
    dot com, derivative, and MBS positions have NEVER recovered and will NEVER
    recover as is the case for assets invested with the four specific money
    managers listed.)

     

    Leveraging to obtain funds to live
    on is not always a great idea even if there are actually no payments.  Of course with HECMs there is at least one
    required payment at termination or perhaps you are speaking about another kind
    of financial product?  HECMs are debt
    which must be paid in full, perhaps not by the borrower (estate, trust, heirs,
    or beneficiaries) solely but nonetheless they must be paid in full.

     

    You may be angry at some well
    meaning but ignorant columnist but making the comment you just did is no different.  The Sacks brothers very carefully laid out
    their assumptions and then showed how their study demonstrated that HECMs taken
    early in retirement will generally provide better results than if taken later
    in retirement.  If the assumptions do not
    match the case of a senior, there are few if any case studies showing that a
    senior would be better off taking a HECM earlier in retirement.  Of course Dr. John Salter, CFP and Harold
    Evensky, CFP have demonstrated that by (not taking “dead money” but rather) putting
    cash held in reserve for emergencies to work in earning higher levels of income,
    seniors, who meet specific criteria, can achieve higher earnings and extend and
    increase cash inflow much longer into retirement without increased risk when those
    seniors employ a “standby” reverse mortgage.

     

    I believe strongly in the HECM
    program and that HECMs should be considered much earlier in the retirement
    process than has generally been advised or advocated.  However, I also believe that without careful
    planning and consideration taking a HECM too early in retirement can lead to
    undue risk and unnecessary economic loss.  

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