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Retirees who want access to cash while remaining in their homes may be interested in reverse mortgage information, which have become increasingly popular as the housing market has heated up and stock markets have fluctuated. 

Reverse mortgages have developed a strong following in the financial planning profession. 

Home loan / reverse mortgage or transforming assets into cash concept : House model, US dollar notes on a simple balance scale, depicts a homeowner or a borrower turns properties / residence into cash 

Reverse mortgages have gained in popularity among retirees in the United States due to the recent decline in the stock market and the continued strength of the housing market. 

According to Reverse Market Insight, which relies on data from the U.S. Department of Housing and Urban Development, the volume of Home Equity Conversion Mortgage loans increased by 26% in March. It dropped 3.8% in April but remained well above 6,000 loans for the month — above the average in the last few years. 

Reverse mortgages no longer have favourable economics. The mortgage insurance premium on HECM loans was raised to 2% from 0.5% in 2017 as a result of rule changes made by the U.S. Department of Housing and Urban Development, which administers the programme. That increased the upfront costs of reverse mortgages by $1,500 per $100,000 mortgage face value. 

However, reverse mortgages currently enjoy a favourable market climate. 

There are five options available for obtaining a loan if you are short on funds. 

The idea is that even if you don’t need cash immediately, setting up a line of credit through a reverse mortgage on good terms can provide access to significant funds down the road. Regardless of what happens to the value of the home, the line of credit will continue to increase at the rate of interest set by the reverse mortgage. To rephrase, a reverse mortgage protects against the possibility of a drop in home value. 

If you have an investment portfolio, you can then decide to either sell investments or draw on the line of credit when you need cash. You might think it sounds like market timing, but Pfau offers a straightforward guideline to help you make the call. 

He recommended liquidating some holdings in the investment portfolio if their value had increased after retirement. “If not, draw from the reverse mortgage line of credit.” 

Some financial advisers have reservations about recommending reverse mortgages. Howard Hook, a certified financial planner and senior wealth advisor has discussed reverse mortgages with only two clients, with only one of them ultimately taking out a loan. 

Some of the advantages and disadvantages of reverse mortgages 

With interest rates still low and home prices skyrocketing, homeowners can take out loans for up to 60% of their equity at attractive rates and in a variety of convenient forms, including a lump sum, monthly payments, or a line of credit with interest accruing only when funds are actually used. 

Reverse mortgages are non-recourse loans. No matter what happens to the housing market or to interest rates, as long as you keep up with the mortgage and property taxes, you can stay in your home for as long as you like, and the terms will not change. The loan is due when you die or leave the home. 

A reverse mortgage line of credit provides flexibility in managing the distribution of retirement benefits. It allows a borrower to take tax-free withdrawals on the credit line rather than sell investments (and pay taxes) after a drop in the market. 


It is easier to qualify for a reverse mortgage, but they are more costly than other mortgages and home equity lines of credit. If for health or any other reason, you don’t stay in the house for long, the costs will seem even higher. 

If you use the proceeds of a reverse mortgage for questionable spending or risky investing, you’re setting yourself up for financial ruin. If it represents a last resort for funds, you are probably living an unsustainable lifestyle. “The better option is to downsize your home and reduce your spending,” said Hook  

Homeowners are still required to pay property taxes, insurance and maintenance costs on the home. If you don't pay back the loan, the lender can seize your home. 

“I know a lot of reputable people like reverse mortgages, but I’m still hesitant to advise clients to consider them,” said Hook, though he agrees that the current economic environment is good for the product. “You have to be careful using debt to finance living expenses or to bridge a fall in the [stock] market. s“ It’s easy money and it can foster bad habits.” 

Hook thinks reverse mortgages could be a good option for borrowers in situations where they need money for medical bills, a more expensive mortgage, or personal debt but don't want to liquidate their investments. But the all-in cost and risk of the reverse mortgage is still high. 

Hook remarked that even though establishing the line of credit would help with the expense, it would still be quite high. The costs will seem much higher if you only end up staying in the house for a short time. 

“All of a sudden, you might find that you can't climb the stairs, or you might develop dementia,” he warned. It's not always up to you whether or not you get to keep your house. 



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