In a wide-ranging dive into the pros and cons of taking out reverse mortgages, Forbes this week advised consumers to shop around.
“Ideally, you’ll want to get at least three quotes,” financial planner and Forbes contributor David Rae wrote. “Make sure each proposed reverse mortgage shows a selection of margins and also illustrates how your choices affect the upfront cost and net payouts.”
Rae introduces reverse mortgages as a potential solution for the retirement stresses facing the baby boom generation, including underfunded savings accounts and a lack of defined benefit pension plans.
“Many didn’t save enough during their working years because they planned to sell their homes and live off the equity by moving to more affordable locales,” Rae wrote. “The problem is that two-thirds of the average retiree’s net worth is in the form of home equity at a time when more are wanting to retire at home rather than selling and moving to Florida, Arizona, or other warm climates.”
After a description of how the program works, Rae lays out the upsides and downsides. Positives include the tax-free nature of Home Equity Conversion Mortgage proceeds, as well as the fact that the additional cash won’t affect lower-income borrowers’ Medicaid status.
The upfront costs, meanwhile, represent a potential issue for Rae — who recommends that homeowners only pursue a HECM if they plan to remain in their homes for a significant amount of time in order to justify the expenses — as well as the danger of a senior spending down all of his or her lump-sum draw.
Forbes contributors frequently weigh in on the costs and benefits of reverse mortgages for seniors, with varying opinions. In the last year, for instance, the financial news site has hosted HECM proponent and taxation professor Jamie Hopkins’s take on the HECM for Purchase program, as well as an exploration of how reverse mortgages can help retirees weather income “shocks.”
Despite his generally balanced portrayal of the loans as options for some seniors, Rae concludes with a warning note, citing a real estate attorney acquaintance who generally advises against reverse mortgages for most borrowers.
“Reverse mortgages are sometimes marketed as a solution to all of a senior’s money problems. They also may sound like a way to more fully enjoy retirement,” Rae wrote. “However, they can be complicated and hard to understand.”
Check out Rae’s full look at reverse mortgages over at Forbes.
Written by Alex Spanko