Kiplinger Highlights Common Reverse Mortgage Questions in Quiz

Prominent retirement writer Jamie Hopkins took a novel approach to tackling common reverse mortgage misconceptions for Kiplinger this week, formatting the discussion as a 10-question quiz. 

The exercise covers such common topics as whether or not the lender takes ownership of a property associated with a Home Equity Conversion Mortgage, the non-recourse feature of the loans, and the potential benefits of setting up a reverse mortgage early in retirement. 

“Very few retirees or their financial advisors, however, know much about how to properly utilize home equity in retirement planning,” Hopkins writes, noting that home values frequently represent the bulk of the average American’s retirement savings. “Since most retired homeowners want to live in their houses for as long as possible, tapping into home equity must be done thoughtfully and through a well-informed, comprehensive retirement planning process. 

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While most of the questions highlight the benefits of taking on a reverse mortgage in certain scenarios, Hopkins also provides a balanced look at some of the potential pitfalls.

“A big downside of using a reverse mortgage is that it is still borrowing,” Hopkins, a professor at the American College of Financial Services in Bryn Mawr, Pa., writes in the answer to a question about ongoing mortgage insurance premiums and interest. “First, you have upfront closing costs with a reverse mortgage, which include lender fees and a large upfront mortgage insurance payment. Over time, interest and mortgage insurance charges accrue based on the current loan balance.”

Hopkins advises prospective borrowers to read a report on the costs associated with HECMs from the Consumer Financial Protection Bureau.

“When compound interest is working for you when investing, it’s great. But when it’s working against you, it’s expensive,” he writes.

Check out the full quiz at Kiplinger.

Written by Alex Spanko

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  • Simple quiz, but question 10 has the wrong answer listed. Now, you CAN stay in the home as a NBS if the borrower goes into a nursing home. That was corrected/clarified by HUD this past fall.

      • REVGUYJIM,

        See the final regs that went into effect on September 19, 2017 which is discussed and linked in Mortgagee Letter 2017-11. See Item 6. on Page 7100, the fourth comment related to 24 CFR 206.55.

    • Ed,

      A NBS (non-borrowing spouse) does not qualify for a deferral. Only a qualified NBS can qualify for a deferral. For example, a spouse who lives in a separate residence cannot be an eligible NBS. Neither can a spouse who married the borrower after the HECM was closed. Just being an NBS is insufficient to obtain the deferral even if the maturity event was triggered solely by the death of the borrowing spouse.

  • As time has gone by, the views of Dr. Hopkins on HECMs are less distant than my own. Even his response to certain conflict of interest issues of BDs with their asset management users are not much different than my own. In a few years, I may very well be establishing views based on the positions and opinions of Dr. Hopkins.

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