Financial Column: Take A Reverse Mortgage Now

With reverse mortgage changes on the horizon, now may be the time for qualified applicants to take out a reverse mortgage even if they don’t need the money, writes financial columnist Jane Bryant Quinn

“I’ve got a financial proposal that is probably going to surprise you,” Quinn writes. “Take out a reverse mortgage at age 62, even though you don’t need the money. In fact, take it especially if you don’t need the money. There will never be a better time.”

Describing a savings strategy utilizing the Home Equity Conversion Mortgage Saver with its credit line option, Quinn advocates taking out the loan now, while interest rates are low, and not withdrawing the borrowed amount upfront. 

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“But – and this is a big but – borrowers should not take out the full amount in cash,” she writes. “You’d be leaving nothing to help pay your bills in your older age. If you’re a spender, don’t take a HECM until your mid-70s or 80s…. If you won’t spend all the money now, a HECM credit line gives you tremendous financial flexibility. You owe interest only on the amount you actually borrow.”

Quinn also refutes one common argument against reverse mortgages: the upfront fees. 

“As for the HECM’s upfront fees, I consider them worth it,” she says. They let you nail down a large pool of future borrowing power, at a time when inflation will have driven your expenses up.”

Read the full article by Jane Bryant Quinn. 

Written by Elizabeth Ecker 

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  • While it is a great read, it is also years too late for many seniors. While I write putting the record straight on the industry generated myth about younger borrowers, it is too bad we do not see many more borrowers 64 years and younger doing exactly as Ms. Quinn advises. But why do seniors who have no current need for the proceeds have to take any at all?

    (The opinions expressed are not necessarily those of RMS or its affiliates.)

    • The upfront fees are not ouf-of-pocket. Comparing the usual alternatives of selling and moving, the financing of an RM is cheap. You turn 62 and you qualify to amass a large sum of money in a line of credit that earns interest. It is not taxable. If/when you start pulling out a monthly income, it lasts as long as you live, even if you live longer than the amount you borrowed…the money keeps coming every month.

  • If HUD implements underwriting of credit and income, and begins to require escrows for taxes and insurance, that may spell the end of the HECM program as we know it.

  • Mr. Zebold,

    I saw your reply before it was posted. So my response is a comment rather than a reply to your reply since I cannot reply to your reply until after your reply is posted.

    What your reply has to do with anything I wrote in this thread is not evident. But I will respond to each part of your reply.

    While you claim upfront fees are not the out-of-pocket costs, they can be. The choice is the borrower’s.

    The financing of a RM is not cheap. It may be reasonable but it is not cheap. Even Savers are not cheap.

    HECM lines of credit do not earn interest; that is total, complete, and utter nonsense. HECM lines of credit can grow or SHRINK depending on the facts (as to shrinking HECM lines of credit please see http://rmdaily.wpengine.com/2009/08/03/are-reverse-mortgage-credit-lines-really-shrinking/). A senior does not “amass” a large sum of money in a line of credit. While the senior may have access to a large sum of money that is much different than amassing a large sum of money. In the first case, the money does not belong to the senior until it is drawn and in the second, the money actually belongs to the senior; they are very different concepts.

    How do you know if the proceeds will end up being taxable or not? If the balance due is greater than the value of the home at termination, some of the reverse mortgage proceeds can very well be taxable. In fact in rare cases, reverse mortgage proceeds may technically be taxable in whole or in part upon receipt but that will only occur if the value of the home at the time of receipt is less than the balance due including the proceeds at issue.

    There is only one kind of reverse mortgage that I am aware of which has tenure payments and that is HECMs. And, no, the money will not keep coming to the senior month after month until the senior dies. It will only come as long as the HECM is in force. This is not an annuity with portability.

    If you are a reverse mortgage originator, you need education. If you are someone with or looking for a reverse mortgage, you need to speak with a counselor or your reverse mortgage servicer.

    (The opinions expressed are not necessarily those of RMS or its affiliates.)

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