Taking out a reverse mortgage line of credit for a rainy day may have gotten less attractive after the introduction of new principal limit factors and mortgage insurance premiums, according to a recent story in the Wall Street Journal.
“We anticipate more consumers waiting to get [a reverse mortgage] until they actually need it,” LendingTree chief sales officer Sam Mischner told the paper.
Mischner’s company crunched the numbers and found that on average, the typical borrower will be able to access 58% of his or her home’s value with a reverse mortgage under the new rules, as opposed to 64% before the October 2 change.
Jack Guttentag, a retired University of Pennsylvania professor and blogger who frequently writes about the Home Equity Conversion Mortgage industry, told the Journal that the new PLFs will have the most damaging effects on younger borrowers, giving the example of a 62-year-old with $300,000 in home equity.
Before October 2, Guttentag said, that hypothetical borrower could have gotten $730 per month for life from a HECM, a figure that dipped to $613 under the new structure. That’s a drop of 16%, according to the Journal, while an 82-year-old with the same amount of home equity would see a decline of a little under 14%: While he could have netted $1,370 per month for life from an old HECM, he can now only take home $1,180.
The WSJ’s analysis mirrors what several experts have told RMD in the last few weeks — including American College of Financial Services professor Jamie Hopkins, who was quoted in the Journal’s piece as saying the HECM line of credit “is a much less appealing option moving forward.”
However, in conversations with RMD, Hopkins also postulated that a slower line of credit growth under the new PLFs could end up combatting one of the biggest stumbling blocks that reverse mortgage professionals face: The idea that a growing HECM line is too good to be true.
“That very robust line of credit growth, I actually think that might have been hard for people to really believe,” Hopkins told RMD. “I think a more reasonable-looking line of credit growth, with some limitations, actually feels more powerful from a marketing and consumer standpoint, where I’m more likely to believe it when I hear it.”
In the end, the Wall Street Journal asks: Is it still worth it to get a reverse mortgage?
“Most experts say yes, although the increasingly popular strategy of taking a reverse mortgage line of credit — known as a standby reverse mortgage — may become less useful because credit lines will now grow more slowly,” the paper concludes.
Written by Alex Spanko