NerdWallet: ‘Standby’ Reverse Mortgage Good for Tapping Home Equity

In the past, the general consensus among financial planners was that a reverse mortgage was a horrible option, but now with reverse mortgages being safer and cheaper than ever, people are changing their viewpoint and being more creative with the ways in which the product can be used, according to a recent article on NerdWallet.

For many people, their investment portfolio is one way they can secure their retirement funds, and protecting it is one of their top priorities. If someone is over 62, a standby reverse mortgage strategy may be one option to help protect their portfolio and help make sure that it lasts throughout retirement.

“Recent research indicated that reverse mortgage lines of credit offer an important safety valve in retirement,” writes personal finance columnist Liz Weston for NerdWallet. “When the stock market plummets, retirees can tap credit lines instead of their portfolios.”

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This method also can help give a portfolio some time to recover when the market rises.

There are numerous ways tapping into home equity can benefit anyone getting near, or in retirement. Funding home improvements with home equity is also a way to help keep someone in their home as they age and significantly cut down on how much of their nest egg they would need to tap into, the article explains.

These are the times when borrowing against home equity can be a smart decision, but those who do need to be aware of all of the rates and terms of reverse mortgages before jumping in headfirst.

Read the full article on NerdWallet.

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  • The post also states: “Today’s reverse mortgages are cheaper and safer than in the past, however, thanks to improvements in the Federal Housing Administration’s Home Equity Conversion Mortgage program.”
    Cheaper than what in the past?

    The per dollar borrowed cost of a HECM has been rising especially over the last FEW years. There are two reasons why. The first is margins are higher today than in early 2009 going from 1% and 1.5% to as high recently as 3.5%. After interest, the second highest cost for all but a few HECMs at termination is the ongoing FHA Mortgage Insurance Premium rate charged monthly at an annual rate of now 1.25% although it is 0.5% for all HECMs with case numbers assigned before 10/4/2010. So looking at just per dollar cost over the same period (apples to apples), HECMs which received their case numbers in 2009 are most likely the cheapest cost on a per dollar borrowed basis.

    Today’s HECM is among the most costly HECM on a per dollar borrowed basis. Yet our marketing and sales pitches say something else entirely.

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