Responding to an article in the Napa Valley Register that portrayed reverse mortgages as a loan of last result, NRMLA President Peter Bell wrote an OpEd column calling the concept a "outmoded perspective that needs re-evaluation."
Bell points to the importance for seniors to look beyond traditional methods of financing retirement and explore all available options to meet their financial needs. This is especially important, he notes, during the current environment of a protracted recession.
The full text of his response follows:
A July 24 Napa Valley Register column, “Retirement Procrastination,” by Tom and John Mills, suggested that reverse mortgages be used only as a loan of last resort. I believe this view is an outmoded perspective that needs re-evaluation. Reverse mortgage loans are an important piece of the retirement financial toolbox, and should be considered as a viable tool to help seniors fund retirement in a variety of scenarios.
Reverse mortgages are available to seniors 62 years old and over who have significant equity in their homes. They are designed to enable elderly homeowners to borrow against the equity in their homes without having to make monthly payments as is required with a traditional “forward” mortgage or home equity loan. Under a reverse mortgage, funds are advanced to the borrower and interest accrues, but the outstanding balance is not due until the last borrower leaves the home, sells or passes away. Borrowers may withdraw funds as a lump sum at loan origination, establish a line of credit or request fixed monthly payments for as long as they continue to live in the home.
As our nation’s recession continues to demonstrate, it is more important than ever to assess all of our options when it comes to retirement, and reverse mortgages are definitely an overlooked and underrated product. Seniors traditionally fund retirement by selling stock and bond holdings before tapping into home equity. Declines in home prices with continued growth in equity markets, however, has changed this equation for many seniors. A reverse mortgage can be used to tap home equity first, as opposed to last. This strategy gives other asset classes, which are more likely to appreciate in the near term, time to recover from historic losses. The reverse mortgage allows seniors to access equity in their homes without having to sell and relocate away from friends and family.
Reverse mortgages are also used to refinance an existing forward mortgage, and allow borrowers to stay in the home without the burden of a current loan payment. This helps borrowers climb out from under a monthly mortgage payment, freeing up money for other uses. Finally, another strategy we are seeing deployed is the use of the reverse mortgage to defer receiving Social Security until age 70, when a higher monthly benefit becomes available.
Indeed, reverse mortgage loans are an important piece of the retirement financial toolbox, and should be considered as a viable tool to help seniors fund longevity. More information about them can be found at reversemortgage.org.
