Kiplinger’s Personal Finance took a deep dive into the potential uses of Home Equity Conversion Mortgages in its upcoming October issue, eventually deeming the product “a versatile solution” for cash-poor, equity-rich seniors.
“It lets you stay put, ditch your mortgage payment (if you still have one), and tap your home equity,” Kiplinger’s associate editor Pat Mertz Esswein wrote.
The piece acknowledges the reverse mortgage’s reputation as “loans of last resort,” but mentions the product improvements implemented over the last few years and scholarly research into their utility outside of emergency cash. For instance, Kiplinger’s spoke with an Arizona couple that took out a reverse mortgage this year instead of a traditional “forward” home equity line of credit, eventually establishing a HECM line of credit worth $172,000 on a home valued at $280,000.
“We don’t really need the reverse mortgage financially,” borrower Bill Deller told Kiplinger’s. “But it makes us feel more comfortable that if we need it, we’ve got it.”
The piece does suffer from some unfortunate timing. Despite bearing a publication date of October, it includes soon-to-be outdated information about principal limits, noting that a borrower can get 52% of the home’s value at age 62; starting October 1, that number will drop to 41% under the Department of Housing and Urban Development’s new lower principal limit structure.
After deeming the HECM credit line “the most flexible option” and explaining some common strategies for using the line in retirement, Kiplinger’s walks through the other draw options and potential pitfalls. Readers are advised to always get three quotes and avoid lenders that charge maximum origination fees, while also using online resources such as the Mortgage Professor and the National Reverse Mortgage Lenders Association’s online database of certified professionals.
The piece additionally explains interest rates, borrower obligations, the end-of-loan process, and a variety of other issues that seniors may consider before taking out a HECM.
Check out the full piece at Kiplinger’s.
Written by Alex Spanko