Changes to the federally-insured reverse mortgage program point toward the product’s optimal usage as a planning tool for retirement, writes retirement columnist Mark Miller for Morningstar.
While Miller says reverse mortgages aren’t his first choice for retirement funding as the loan is a form of debt and the new reforms make the product more expensive, he acknowledges that home equity is one of older American’s most important balance sheet assets that many will need to tap in retirement.
“In that context,” he writes, “the recent changes to the HECM (Home Equity Conversion Mortgage) program are a step in the right direction because they aim to make the loans safer and encourage loan usage as a long-term financial-planning tool, rather than as a disaster-recovery tool for households already facing significant financial stress.”
The updated HECM program resembles the older HECM Saver, says the column, and while the mortgage insurance premium has increased, the new rules can actually yield a slightly higher loan amount in certain circumstances. The below scenario is for a 65-year-old borrower with a home valued at $500,000:
“The old saver HECM was a bit stingier with older borrowers,” Jerry Wagner, owner of reverse mortgage calculation platform Ibis Software, explains to Miller.
Written by Alyssa Gerace