Financial Advisor: Reverse Mortgages Are Getting ‘Another Look’ During Pandemic

Reverse mortgages are getting a notable amount of new interest from American seniors due to the ongoing effects of the COVID-19 coronavirus pandemic, according to a newly-published column in Financial Advisor magazine.

“Home Equity Conversion Mortgages (aka, reverse mortgages) allow those 62 and older to take equity out of their homes without monthly repayments; the homeowners don’t have to pay this money back until they die as long as they stay in their houses, and the money can be taken as a lump sum or line of credit,” writes FA columnist Eric Rasmussen. “In the first months of the pandemic, reverse mortgages likely looked like a good way for retirees to tackle their expenses when other investments were cratering.”

Citing reverse mortgage origination figures as seen in August (4,007) and May (5,038), the endorsements seen during several pandemic months in the United States are noticeably higher than at the same points in time during 2019, Rasmussen observes.

“[The monthly reverse mortgage endorsement figure has] been hovering above the 4,000 mark in the months since then,” he says.

According to a working paper released in September by the Pension Research Council at the University of Pennsylvania’s Wharton School, many people still remain skeptical about the terms of a reverse mortgage loan which has kept engagement with the product category lower than it is in other developed nations, such as Canada or the United Kingdom.

“Reverse mortgages have long been viewed with skepticism by some retirees, financial planners, and financial institutions,” according to paper authors Stephanie Moulton of Ohio State University and Chris Mayer of Columbia Business School (Mayer also serves as CEO of Longbridge Financial).

As many as half of borrowers who may have been rejected for a Home Equity Line of Credit (HELOC) in 2018 could’ve potentially qualified for a reverse mortgage, the paper says. Still, many financial advisors remain wary of the reverse mortgage product category.

“The product has very high costs associated with the transaction,” says advisor Vince Clanton of Chancellor Wealth Management in Atlanta, Ga. to FA. “The sales cost is marginal, but there is an insurance component to protect the lender, and I think that is very expensive. The embedded interest rates are variable, and the cash available is limited. If someone is still working, a cash-out refinance is possible. If in retirement, it may be that the best option is to sell the home, and downsize.”

Read the article at Financial Advisor.

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