Reverse mortgages have often been touted by members of the financial planning community as a “saving grace” for retirees unprepared to face the realities of retirement. But as a recent Forbes article indicates, the old reputation of Home Equity Conversion Mortgages continues to hamper the acceptance of this emerging concept of financial salvation.
Historically, reverse mortgages have carried the widespread belief as loans of last resort, to be used only once senior homeowners have exhausted all other means of financial wealth. As a result, any acceptance of reverse mortgages in financial and retirement planning was limited to this last resort notion after all other possibilities had failed, writes Wade Pfau, professor of retirement income at The American College and principal at McLean Asset Management in McLean, Va.
Both a frequent Forbes contributor and researcher on the topic of reverse mortgages, Pfau notes that any discussion of reverse mortgages as a retirement income tool has also been hindered by “real or perceived negatives” related to traditionally high costs and inappropriate uses for HECM loan proceeds.
“These conversations often include misguided ideas about the homeowner losing the title to their home and hyperbole about the American Dream becoming the American Nightmare,” Pfau writes in the Forbes article published last week.
He acknowledges, however, developments in recent years have made reverse mortgages safer products for responsible borrowers. These changes, Pfau says, have made reverse mortgages harder to dismiss outright in the context of retirement planning.
“In short, well-handled reverse mortgages have been suffering from the bad press surrounding irresponsible reverse mortgages for too long,” Pfau writes. “Reverse mortgages give responsible retirees the option to create liquidity for an otherwise illiquid asset, which in turn can potentially support a more efficient retirement income strategy (more spending and/or more legacy).”
Read the rest of the Forbes article.
Written by Jason Oliva