In Money Magazine's "Ask the Expert", senior editor Walter Updegrave responded to a reader question about using a reverse mortgage as line of credit because they could use additional money. Updegrave indicated that this can be a good way to turn home equity in to additional funds to supplement Social Security and other retirement assets to make retirement more enjoyable, with several caveats.
As has been common with other recent reviews of the HECM program, the article points to the HECM Saver as making the loans more palatable due to the reduction in up front mortgage insurance from 2% to .01%. The concern that Updegrave raises is that the 2% up front insurance of the Standard boosts the total cost of borrowing and raises the effective annual interest rate, especially if the total amount drawn on the loan remains low or if the loan is not held for very long.
According to Updegrave, due to the lower costs the Saver can potentially be a viable option for those who don't think they'll use much of the line of credit, or are not sure how long they will remain in the home.
Acknowledging that the Saver provides less proceeds than the Standard, he also advises that it is important to understand all charges associated with both programs, along with the potential need, and the anticipated time a borrower intends to remain in the home. He suggests that it makes sense to compare reverse mortgage options to others, such as tapping a cash-value life insurance policy or downsizing to less expensive housing and using the left over proceeds.
Finally, he warns to be aware of potential abuses by advisors who seek to convince reverse mortgage borrowers to take their proceeds and invest in inappropriate financial products.
The end result is a common sense approach to responding to the question about utilizing a reverse mortgage to supplement retirement. Updegrave provides a reasonable explanation of what the products can provide, and points to concerns and options someone should consider before proceeding with the product. It is this type of article that presents a starting point for someone beginning to explore the benefits of the product.