A borrower contemplating a reverse mortgage should keep particular scenarios in mind about the timing and circumstances of their choice to engage in such a loan, as well as all of the specifics of their own financial situation. This is one idea shared in a recent column published by U.S. News & World Report, aiming to determine when a reverse mortgage is either a good or bad idea for a particular senior.
After describing the basics of the Federal Housing Administration (FHA)-sponsored Home Equity Conversion Mortgage (HECM) as well as certain proprietary options, the column then goes into details including reverse mortgage costs to borrowers, as well as various uses and disbursement options which exist.
The column then gets into the arguments regarding when it is a good or bad idea to proceed with a reverse mortgage, with both focused on individual circumstances. For instance, it would be a good idea to consider a reverse mortgage for those who wish to stay at home; who wish to preserve their estate; and for anyone planning for their future while staying at home.
“You can spread the closing fees over a longer period of time and also rely on the payments from the HECM to pay for ongoing and/or emergency expenses,” the column reads. “A HECM could also help you pay for renovations to retrofit your home for aging in place.”
In terms of “preserving your estate,” this comes down to the avoidance of sequence of returns risk, the column explains.
“If you have other non-home assets – such as an investment portfolio – funds from a HECM can cover everyday costs while the investments remain untouched and can grow,” it reads. For those planning for the future, a reverse mortgage may simply be more reliable than other options.
“Don’t look at the HECM as a last resort – it can be a ready source of credit that you take out at 62 and don’t use until you really need it years later,” the column reads. “Unlike some other funding sources, such as a home equity line of credit, a HECM will always be there.”
For situations in which a reverse mortgage could be a bad idea, the column nails down three additional scenarios: if you’re moving soon, then getting a reverse mortgage would basically be a bad option since the loan would become due and payable as soon as you leave the home with the HECM lien. A reverse mortgage would also be a bad idea for anyone ill-equipped to manage money, and for those who haven’t planned the use of the loan proceeds effectively.