Looking for additional sources of cash without relying on one’s own assets that can be sold or leveraged will often involve the use of products or instruments from financial services institutions, which could add some risk for certain people. However, the safe tapping of home equity is certainly possible, and a reverse mortgage could be one of those safe options for borrowers.
This is according to a newly-published column at Consumer Reports. While reverse mortgages are included among other, more typically-used home equity tapping products, a reverse mortgage is something at least worth considering depending on the financial goals of the prospective borrower, the column says.
It can be a particularly useful tool for those who need cash and are able/willing to borrow against the value of a home, according to Greg McBride, chief financial analyst for the online financial site Bankrate.com.
“A reverse mortgage would eliminate the monthly mortgage payment, drastically reducing household expenses, and can enable borrowers to tap their accumulated equity via a lump sum, regular payments, or a line of credit,” McBride tells Consumer Reports.
One element McBride explains makes a reverse mortgage particularly useful is the ability for borrowers to use the loan’s proceeds to delay taking Social Security until a later age, when those benefits can be maximized.
“It can also be used as a tool to stave off having to tap retirement accounts, either in down-market years or to allow more time for tax-advantaged growth [like a Roth IRA,]” he added.
However, Consumer Reports also writes that reverse mortgages can be “complicated, risky and controversial,” linking to another article the publication wrote in 2016 detailing certain reforms that had come to the reverse mortgage program by that point in time.
“One big concern is that when the loan holder dies, the home’s ownership transfers to the bank,” Consumer Reports writes, which erroneously attributes reverse mortgage lenders. “If the surviving spouse isn’t also on the loan, they often face eviction unless they can afford to buy the home back from the lender. Plus, these compounding-interest loans can be expensive. And seniors who can’t keep up with taxes, insurance, and home maintenance while they live in the property risk defaulting on the loan and losing their house.”
The piece also describes reforms that were introduced to the Home Equity Conversion Mortgage (HECM) program in 2017, regarding financial assessment and the ability for borrowers to maintain their loan obligations.
“But Consumer Reports believes more reforms are needed to protect borrowers better,” the section concludes, stopping short of describing which reforms the organization believes would be most helpful.
Read the article at Consumer Reports.