Reverse mortgages became a harder sell for potentially skeptical borrowers amid the most recent program changes, according to a syndicated financial columnist.
“Recent changes to reverse mortgages mean seniors and their families may have tougher decisions to make,” financial planner Liz Weston wrote in a column for the website NerdWallet.
Weston quotes a variety of experts in the column, which was picked up by the Associated Press, who claim that the new calculus of lower principal limits and potentially higher mortgage insurance premiums results in a less attractive product for certain borrowers — particularly those who may have been interested in a standby line of credit.
“For a reasonably affluent client that has a $300,000 or $500,000 house, that’s $6,000 to $10,000 of upfront costs just in case you might ever need the line of credit,” financial planner and blogger Michael Kitces told Weston. “It’s just too much of am mental upfront hurdle for most clients.”
The column echoes concerns in the industry over the direction of the program under the new rules, which some have said will return the Home Equity Conversion Mortgage back to the days of being a product of last resort.
“These days, reverse mortgages may be best suited for the way many people have traditionally used them: to pay off existing mortgages so they can eliminate monthly payments or to generate monthly income in retirement,” Weston wrote, characterizing the opinions of noted HECM researcher Wade Pfau.
“Those borrowers actually benefited from some of the changes, which included a reduction in annual insurance premiums on borrowed amounts,” Weston continued.
Still, while the column posits that the “brief heyday” of taking out a HECM line of credit to protect against future financial troubles has ended, Weston concludes that the mainstream discussion of the strategy has raised the reverse mortgage’s profile among potential borrowers.
“It got more financial planners thinking about a product they used to shun,” she writes.
Read the full column at U.S. News & World Report.
Written by Alex Spanko