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Financial Planner: Don’t Overlook Reverse Mortgage in Time of Crisis

While recent legislation aimed to assist Americans in the midst of economic turmoil caused by the COVID-19 coronavirus pandemic has been beneficial, mortgage forbearance options made available to people through the Coronavirus Aid, Relief, and Economic Security (CARES) Act has not addressed other living expenses that could leave people on fixed incomes vulnerable. This is why the option of a reverse mortgage should not be overlooked.

This is according to George Gagliardi, financial advisor with Coromandel Wealth Management in Lexington, Mass. in a new editorial published at Wicked Local Lexington.

“The CARES Act has granted a temporary reprieve for those who are having difficulty making mortgage payments because of reduced income — up to 12 months of forbearance which must eventually be paid back with interest — but it hasn’t done anything for the other living expenses,” Gagliardi writes. “While people scramble to get HELOCs (home equity lines of credit) on their homes, tap their retirement plans (not a good idea unless a last resort) or plead with creditors for forbearance on their debts, many are overlooking Home Equity Conversion Mortgages (HECMs) as an option.”

As long as at least one spouse is age 62 or older, a reverse mortgage can provide a “superior” way to access cash and reduce debt, Gagliardi says.

Recognizing that it may have been a while since some people may have paid reverse mortgages any attention, Gagliardi describes recent changes that the HECM program has undergone that could help to make the potential benefits more easily understood.

“The up-front FHA insurance premium was increased to 2%, but the FHA surcharged that is added to the loan rate was decreased from 1.25% to 0.5%, which represents a savings to those who roll their existing mortgages into the HECM as well as when the line of credit is accessed for cash,” he writes. “Maximum HECM mortgage amounts have been increasing each year. In January 2017, the maximum was $625,000. Today it is $765,525.”

Other recent changes include the tightening of loan limits to ensure the solvency of the reverse mortgage program, as well as the potential for a second appraisal if a home is perceived to have the possibility of an inflated valuation, he says. Private reverse mortgages are also more prevalent for those homes who may have values or available equity above the HECM lending limit, he adds.

Reverse mortgages can allow someone to delay the taking of their Social Security benefits, cover long-term care (LTC) expenses, generate “on demand” tax deductions, or finance the sale of a retirement home after selling the current home, he says.

“Reverse mortgages are a practical way to tap the equity locked up in your home, and free up cash that might be urgently needed now or later on in your retirement,” Gagliardi writes. “To ignore them is to possibly put your current and future financial security at risk when the solution to these issues is sitting there right under your nose.”

Read the column at Wicked Local Lexington.