TIME Touts Benefits of the ‘New’ Reverse Mortgage

Highlighting the most recent series of program changes to reverse mortgages over the past year, TIME Money says these “once-suspect” loans can now be a useful retirement tool.

In another instance of positive press for the reverse mortgage industry, the TIME article echoes much of the same praise and recognition Home Equity Conversion Mortgages have garnered from the mainstream media as a result of the Financial Assessment, non-borrowing spouse protections and acceptance among financial planners.

“There’s a totally different way of thinking about these [reverse mortgages] now,” said John Salter, professor of personal financial planning at Texas Tech University.

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Salter, who has published extensive research on how reverse mortgages can function as a risk management tool for retirement distributions, emphasizes the line of credit’s ability to be used as a potential safety net.

“Maybe you’ll never use it [credit line], but if you have a financial shock or health care crisis, it’s there,” he said in the article.

TIME also notes that while reverse mortgages are often considered more expensive than traditional mortgages or home equity lines of credit, the costs have dropped over the years.

“In 2013, the initial issuance premium was cut to 0.5% of a home’s value, down from 2.5%, provided you limit your borrowing in year one,” TIME Money’s Donna Rosato writes. “That’s a saving of $6,000 on a $300,000 home.”

But while other rule changes have made reverse mortgages safer even for borrower’s families, namely policy updates permitting surviving non-borrowing spouses to remain in their home, TIME the article with a word of caution regarding the importance of  paying property taxes and other mandatory obligations.

“If you fail to pay property taxes or home insurance, you can still lose your home,” Rosato writes. “So, if you’re already stretched financially, downsizing might be a better option…”

Read the TIME Money article.

Written by Jason Oliva

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  • Then there is a statement like: “The older you are and the more equity you have in the house, the more you can get.” What nonsense. A borrower with a million in equity may not be eligible if the existing mortgage is $500,000 and the borrower can not pay it sufficiently down before closing.

    Or, “You can take the money as a monthly payment, lump sum, or line of credit to tap as needed.” And what about the first year limitation of disbursements to 60% of the principal limit?

    Or, “You’ll pay a floating rate on the withdrawn money, now around 4%—about the same as for a traditional home-equity line of credit.” Such a claim with no statement about fixed rate?

    Or, “In 2013 the initial insurance premium was cut to 0.5% of a home’s value, down from 2.5%….” In 2013 for about the same amount of proceeds, the upfront MIP on any Saver was just 0.01% but on Standard it was just 2%. From whom are these folks getting their facts?

    Or, “Your spouse is protected. In the past, if only one spouse was listed as a borrower and that spouse either died or moved—say, to a nursing home—the reverse mortgage had to be repaid soon or the other spouse had to move out. A new rule, implemented last June, lets a nonborrowing spouse stay in the home as long as it’s still his or her primary residence.” Unless the borrowing spouse passes away, a nonborrowing has no right to stay in the home if no borrower is using the home as that person’s principal residence.

    The article is great except there are sufficient flaws that a 2016 version of the product is barely recognizable. This article should not be classified as positive on HECMs but rather for some other kind of reverse mortgage.

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