With the stock market becoming unpredictable and the housing market remaining hot, reverse mortgages have become an increasingly attractive option for retirees who need income but wish to remain in their houses.
The number of Home Equity Conversion Mortgage loans increased by 26% in March, as reported by Reverse Market Insight, citing statistics from the Department of Housing and Urban Development. It decreased by 3.8% in April, but remained well above 6,000 loans for the month – well above the norm of the previous three years.
The economics of reverse mortgage loan santa clara are no longer as advantageous as they once were. The Department of Housing and Urban Development, which administers the HECM program, increased the mortgage insurance cost on the loans from 0.5% to 2% in 2017 in an effort to reduce potential taxpayer losses. This resulted in a $1,500 rise in the upfront fees of reverse mortgages every $100,000 of mortgage face value.
Nevertheless, the market conditions for reverse mortgages are excellent.
“This is still a terrific time to contemplate a reverse mortgage,” said Wade Pfau, PhD, a principal and advisor at McLean Asset Management in Tysons, Virginia. There has been a significant increase in house prices, while interest rates remain historically low.
Reverse mortgages have gained popularity in the financial planning industry, with planners such as Pfau promoting it as a potentially valuable option for retirement distribution management.
Home equity accounts for approximately 66% of the average retiree's wealth, so it makes sense to use it as a potential source of finances if you're pressed for cash — even if costs are higher now.
“Research in the financial planning profession regularly demonstrates that reverse mortgages can enhance retirement planning outcomes,” said Pfau, author of a book on the products. People benefit from having a secondary source of funds outside of their financial portfolios as a safety net.
Even if you do not need cash immediately, establishing a line of credit through a reverse mortgage with favorable conditions can enable access to substantial funds in the future. Regardless of what happens to the home's value, the line of credit will continue to rise at the same rate as the reverse mortgage's interest rate. In other words, a reverse mortgage protects against the danger of property price declines.
When you need cash and have a portfolio of investments, you can choose between selling stocks or drawing on the line of credit. This may sound like market timing, but Pfau proposes a straightforward guideline to guide the decision.
“If your portfolio is worth more than when you retired, you should liquidate it,” he said. If not, utilize the reverse mortgage credit line.
Not every advisor supports reverse mortgages. Howard Hook, a certified financial planner and senior wealth advisor with EKS Associates in Princeton, New Jersey, has only discussed the reverse mortgage option with two customers, one of whom finally obtained a loan.
Reverse mortgages may be suitable for borrowers who need to pay off health-related bills, a more expensive mortgage, or personal debt without selling investments. However, the total cost and risk of reverse mortgages remain considerable.
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