For people who are running up against unanticipated financial difficulties in retirement, this is when it might be appropriate to consider options that may not have warranted consideration in the past. One such option that could prove pivotal is a reverse mortgage.
This is according to Joel Johnson, a certified financial planner and retirement columnist in a new piece published by Forbes.
“Now may be an ideal time to integrate an [Home Equity Conversion Mortgage (HECM)] into a retirement income plan as home prices in many regions have reached all-time highs, and interest rates are still favorable,” Johnson writes. “Seniors pay no income taxes on money they borrow and can use it in a myriad of ways — to improve monthly cash flow, cover emergencies like major home repairs or unanticipated health care costs, reduce or prevent the need to sell stocks during a market downturn, and make the dream of aging in place a reality.”
In addition to describing the common features of a HECM loan and how it works, Johnson also explains how the loan’s nonrecourse feature could be a big difference-maker for seniors.
“If your home value drops below the loan amount, you won’t lose your house,” he writes. “The federal mortgage insurance on the HECM loan protects you and pays the difference. This coverage also protects you as a seller as long as the sales price equals or exceeds the appraised fair market value.”
While potential disadvantages should also be considered — such as the assumption of new debt, a desire to use the home as a bequest asset as well as the differences between the forward and reverse mortgage application process — consideration is the name of the game considering how high home values have become over the past year, Johnson says.
On top of that, the tide is apparently turning in terms of the perception of a reverse mortgage as a potentially viable financial option for retirees based on some of the press that has been dedicated to the product category recently, he says.
“Rising real estate values and favorable interest rates have prompted more retirees than ever to tap into their home’s value. HECM volume hit a record high in 2021,” he writes. “Financial journalists have also started touting the advantages of these loans. If you use Google News to research ‘reverse mortgages,’ you’ll see exactly what I mean.”
Read the column at Forbes.