Kiplinger: Reverse Mortgage ‘Makeover’ Enhances Appeal for Retirees, Planners

In recent years, reverse mortgages underwent a much-needed makeover to enhance the Home Equity Conversion Mortgage (HECM) program and improve borrower protections. As an added bonus, these critical updates have also increased the appeal for reverse mortgages, which have gained some new supporters in the retirement planning world since then.

“Over their 29-year history, reverse mortgages have earned a bad rep, thanks to smarmy TV ads and fears that borrowers could easily lose their home to the bank,” writes Pat Merts Esswein for Kiplinger’s Personal Finance, April 2016. “And many financial advisers have given reverse mortgages the cold shoulder, knocking them as high-priced, risky loans of last resort.”

Now, as a result of recent rule changes, particularly the Financial Assessment, more planners have begun to pay greater attention to reverse mortgages and the role they can play in retirement income planning.

Kiplinger references several of the most recent change to the HECM program, including the Financial Assessment, 60% upfront draw limitations and updates to the non-borrowing spouse policy.

The article also discusses the strategic use of the reverse mortgage line of credit, drawing insight from Wade Pfau, director of retirement research at McLean Asset Management in McLean, Va.

Reverse mortgages offer flexibility to help make other retirement resources last, Kiplinger credits Pfau as saying.

“One of the biggest risks in retirement is that a market downturn could force you to sell investments at a loss to maintain income,” Kiplinger writes. “With an HECM line of credit, you could make withdrawals when the market is down and, when your portfolio has regained value, sell investments to replenish the line.”

Read more at Kiplinger.

Written by Jason Oliva

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