It has been roughly three months since the Department of Housing and Urban Development implemented the product-changing financial assessment in its Home Equity Conversion Mortgage program. Many mainstream news outlets have picked up on the news, including USA Today in an article published this weekend.
“As you near retirement, you may foresee a need for more money in the golden years than your savings can handle,” writes Sterling Raskie, a financial planner at Blankenship Financial Planning in New Berlin, Ill., in an article published by USA Today. “You look to use Social Security, careful withdrawals from qualified accounts and maybe annuities. Can you also use one of your biggest assets: your home and its equity in the form of a reverse mortgage?”
Raskie’s discussion of reverse mortgage benefits and risks includes a note on the financial assessment and the required set-aside that results for some borrowers. He notes the origination fees involved, that interest isn’t tax deductible as it is in a forward mortgage, and that property maintenance, homeowners insurance and tax are ongoing costs that the borrower must continue to maintain.
Shop around, he advises prospective borrowers in the article, citing Federal Trade Commission recommendations, including a comparison of costs and fees; an understanding of total cost and loan repayment; and an understanding of the reasons a borrower may need to repay the loan before he or she has planned to do so (in other words, resulting from a maturity event).
“Pitchmen often dangle these loans as easy tools to fund maintenance and other home costs. Inflation can also eat away the buying power of fixed payment amount,” Raskie writes. “Nevertheless, when you do the deal right a reverse mortgage can increase your chances of a healthy income in your golden years, especially if you use the money in conjunction with other income such as Social Security, pensions and payouts from your retirement accounts.”
Written by Elizabeth Ecker