Compared to the reverse mortgages found in the marketplace just three years ago, Home Equity Conversion Mortgages nowadays bear little resemblance to their past selves. As the reverse mortgage product has evolved over the years with new program changes, so too have their functions in meeting the various needs of today’s dynamic aging population.
Following several rule changes since 2013, which saw the introduction of upfront draw limitations, new principal limit factors, the long-awaited Financial Assessment and various updates to the non-borrowing spouse policies, the HECM program today is almost unrecognizable from the previous generation of reverse mortgages.
The “New” Reverse Mortgage
As a result of the recent program changes, the HECM product has been often referred to as the “New Reverse Mortgage.” In many cases, it’s not the product that prospects thought it was.
“Most people believe that a reverse mortgage is just for needs-based borrowers,” said Dan Hultquist, co-chair of the National Reverse Mortgage Lenders Association’s Education Committee. “We’ve heard over the years that it [reverse mortgage] is a last resort loan, but that is now only a smaller piece of the pie than it has ever been,” he said.
Financial Planning Value
Since 2012, there has been a growing amount of research from both the financial planning and academic communities demonstrating the effective use of reverse mortgages as part of a coordinated retirement income plan.
When obtained early during retirement via a line of credit, having a reverse mortgage affords retirees the ability to buffer against market downturns by giving them another source of wealth from which to draw, so they can avoid selling-off assets at a loss.
Meeting a Wealth of Needs
As the number of needs-based borrowers have diminished and the number of financial planning borrowers have grown, there is one subset of HECM borrowers that has largely remained constant, even through the recent program changes: lifestyle borrowers.
Unlike their needs-based counterparts, lifestyle borrowers are not financially desperate. While they may have enough money on a monthly basis to live on, they do, however, require extra funds to improve their quality of life during retirement.
In some cases, these borrowers might use a reverse mortgage to fund home repairs or make renovations to their property in efforts to make retirement more comfortable. For other borrowers, being able to age in place might mean using a reverse mortgage to pay for the costs of in-home care.
Source: Jason Oliva, Reverse Mortgage Daily