Even though reverse mortgages have been around for decades, many people have not viewed them in the most positive light, but since new rules were put into place, people have been giving them another shot. And the demand for the product is expected to increase drastically as baby boomers retire, according to a recent article from CNBC.
There are about 10,000 baby boomers retiring each day and some 59% of them expect Social Security to be a major source of their income during retirement, the article writes.
One important change that has changed the perception of the reverse mortgage program is the Federal Housing Authority’s rule that only allows borrowers to draw up to 60% of their initial principal limit within the first year of the loan, though there are some exceptions.
“This program was created to give seniors access to an incremental, sustainable financial resource to allow them to age in place, not as an ATM machine,” said Brian Sullivan, spokesman for U.S. Department of Housing and Urban Development in the article.
The non-borrowing spouse protections that were put into place also have started making the program safer and more effective for borrowers.
Financial advisors, though, continue to be on both sides of the fence on reverse mortgages, the article explains. There are some who do think it is still a last resort in a dire situation, but others are saying they have come around to the idea of the product and can see how it may be useful for certain clients.
Establishing a reverse mortgage line of credit earlier, rather than later, in retirement may also make a difference when it comes to a person’s success when managing their finances, particularly when buffering against sequence of returns risk, as recent recent has indicated.
Read the full CNBC article.
Written by Alana Stramowski