Early in his new book on retirement strategies, financial planner and professor Jamie Hopkins introduces the idea of reverse mortgages as a potential part of long-term retirement planning — and he quickly anticipates the potential backlash.
“Let me preface this by pleading with you to continue to read and not give in to your urge to skip the discussion of reverse mortgages because you have heard negative things about them,” Hopkins writes in “Rewirement: Rewiring the Way You Think About Retirement.”
“While there are risks with utilizing a reverse mortgage, if properly used, it can be one of the best features of your retirement income plan,” he continues.
Hopkins, an associate professor of taxation at the American College of Financial Services in Bryn Mawr, Pa., is no stranger to advocating for use of the reverse mortgages, writing at length in publications such as Forbes and conducting research about usage of the products. He’s also emerged as a frequent presence on the conference circuit, including at the recent Housing Wealth in Retirement Symposium co-hosted by the American College and the Bipartisan Policy Center.
The breadth of the speakers at that event, held in Washington, D.C. last month, shows just how far the Home Equity Conversion Mortgage has come in the public imagination, Hopkins told RMD.
“Almost unilaterally, across the board, everyone said it was being underutilized,” Hopkins said, pointing to the attendance of representatives from AARP, the Urban Institute, the Brookings Institution.
Three to four years ago, the idea of those groups being completely open to reverse mortgages and attending a conference on the subject would have been close to unthinkable, in Hopkins’s estimation.
“You probably wouldn’t have believed it,” he said. “They’re all taking it very seriously, the role that reverse mortgages are going to play.”
His new book expands on some of those themes, recommending reverse mortgages in certain scenarios to help boost retirees’ overall cash flow. Calling the HECM perhaps the most important home equity option for retirement planning, Hopkins provides a detailed explanation of the upsides and potential downsides, and strikes back at the notion that the product is reserved for down-and-out seniors.
“Research has shown that using a reverse mortgage as a true last resort once all other assets are gone is the worst way to use your home equity,” Hopkins writes in the book. “In many cases, this use of reverse mortgages just makes a bad situation worse — people run out of money, poorly spend the reverse mortgage payments, cannot meet their property and insurance taxes, and lose their homes.”
Instead, he lays out three key times when a senior would be wise to consider a reverse mortgage: When purchasing a new home after age 62, when looking for a way to pay off traditional mortgage debt, and when interested in tapping into home equity as a retirement cash-flow supplement.
“I think looking at the HECM for Purchase program in comparison to other options is prudent,” he writes. “This may not be the right solution, but it could be.”
With the cash-flow option, Hopkins describes opening a line as soon as one turns 62, then letting the line grow over time to use in case of market downturns. While new principal limit factors rolled out last year have slowed that growth, Hopkins has said in the past that the strategy remains a valid option for retirees — and several speakers at the symposium pointed out the added advantage of setting up a line in an era of rising interest rates, he said.
“This is really an underutilized asset and tool for Americans,” Hopkins said. “I thought that was a really big takeaway.”
Written by Alex Spanko