There are some risks associated with reverse mortgages, but borrowers are in control of those risks, writes Jack Guttentag, a.k.a. The Mortgage Professor, in a new column this week published by Inman News.
In addressing a question about reverse mortgages in a new column this week, the Mortgage Professor responds by explaining the importance of reverse mortgage options during a time when more than half of people do not believe they will have enough money to live comfortably in retirement. The risks and rewards of a reverse mortgage for many of those people, as long as they fulfill the terms of the loan, should be considered, he says.
“The fact that all the risks associated with a HECM reverse mortgage are entirely under the control of the senior is a subtlety that eludes many,” Guttentag writes.
The Pew Research Center has found that between 2002 and 2011, the percent of adults who said that they will not have enough money to live “comfortably” in retirement rose from 32 percent to 53 percent. Among adults in the 55 to 64 age bracket, the percent who are “not too” or “not at all” confident they will have enough to live on in retirement rose from 26 percent in 2009 to 39 percent in 2012.
This growing concern is well-founded. The Center for Retirement Research at Boston College has developed and maintains a “National Retirement Risk Index,” which uses data collected by the Federal Reserve in its Survey of Consumer Finances to calculate the percent of households who “may be unable to maintain their standard of living in retirement.” A better title would be “Index of Retirement Impoverishment.” The index rose from 31 percent in 1983 to 44 percent in 2007 to 53 percent in 2010.
The calculation assumes that all wealth of retirees is converted into income, including their housing wealth, which is a large proportion of the total. But converting housing wealth into current income can be done only by selling the home and investing the equity, or by taking a reverse mortgage. If the data were calculated separately for retirees who remain in their home but don’t take a reverse mortgage, the percent faced with retirement impoverishment would be substantially higher…..
Read the full article at Inman News.
Written by Elizabeth Ecker