In back to back articles on the authoritative Kiplinger financial website, the highly regarded financial source recently came out with a piece strongly endorsing the power of the reverse mortgage to help retirees better afford retirement – then followed up days later with another article warning of big changes to come in reverse mortgage fees and regulations. It’s a vivid example of the changing nature of the market for these powerful financial tools.
First let’s cover the so-called “bad news” about reverse mortgages, also called Home Equity Conversion Mortgages or HECMs. In this article about the new regulations, Kiplinger Editor Rachel Sheedy warns that “The government is changing the loan’s insurance costs and reducing how much applicants can borrow—and the window for borrowing under the old rules is closing fast.” (We also wrote about this change last week on the AgingOptions blog in an article you can access by clicking here.) How fast? The new rules are slated to take effect October 2nd. Kiplinger’s Sheedy calls this “a surprise move” and says that the new regulations, while appearing to hike fees and lower borrowing limits, may actually represent “a mixed bag for borrowers.” That’s because, while some costs are rising, others are not, and it will take a consultation with a reverse mortgage expert to determine how the new rules affect each individual borrower.
We won’t go over the changes in detail here – you should read the Kiplinger article for some of the specifics. Suffice it to say that, if you qualify for a lump sum payout of up to 60 percent of the loan amount you’re entitled to, your up-front fees are going up significantly. (For those allowed to borrow more than 60 percent, there is actually a slight drop in fees.) Another change affects the cost of on-going insurance – it’s going down, so much so that one expert says the lower premiums could save $750 per year for every $100,000 borrowed. For many borrowers, writes Rachel Sheedy, “The lower ongoing cost (of insurance) may offset much or all of the higher upfront cost.”
However, one of the most significant changes is that, for many borrowers, the total amount of available proceeds is dropping. Kiplinger’s Sheedy says, “The adjustments will hit most new borrowers, cutting potential proceeds by 10 percent to 12 percent.” While older borrowers will still have an advantage over younger ones, “most everyone will now qualify for less than before.” Kiplinger warns that the changes “are raising costs across the board, while simultaneously lowering borrowing power.” And with the extremely tight October 2nd time frame, “it will be tough for anyone just starting the process to beat the deadline.”
What with the just-announced regulatory changes, it’s ironic that this second Kiplinger article about HECMs appeared at just about the same time (actually a few days before) as the first one. Here, in a piece called “Reverse Mortgages that Work,” Kiplinger Associate Editor Pat Mertz Esswein called the HECM “a versatile solution” and “a path to provide retirees with flexibility and security.” She quotes statistics from the National Reverse Mortgage Lenders Association that estimate only about 3 percent of those eligible to set up a reverse mortgage have actually done so, and part of the reason may be past bad publicity. “Many financial advisers and consumers continue to think of reverse mortgages as loans of last resort,” Esswein writes. “But some potentially detrimental features have been corrected. And over the past several years, financial researchers have found that a reverse mortgage taken as a credit line early in retirement can grow, providing steady income or buffering financial shocks, even for well-heeled borrowers.”
The article goes on to describe many of the terms and features that have made the reverse mortgage so attractive to hundreds of thousands of homeowners, including the wide variety of payout options and the fact that proceeds from a reverse mortgage are tax free: an HECM doesn’t affect Medicare costs, taxes on Social Security benefits, or eligibility for Medicaid, writes Kiplinger. And while no repayments are required while you remain in the house, you can repay the loan balance any time if you choose, and without penalty.
If you think a reverse mortgage may be right for you – or even if you’re wondering – we urge you not to wait any longer. Contact us at AgingOptions and let us introduce you to a trusted advisor, someone like Laura Kiel, who will help you assess your situation objectively. But you need to hurry if you want to get ahead of the impending changes in government regulations! Laura and her colleagues will do their best to confer with you before the deadline comes.
If you’re facing retirement and are plagued with uncertainty – with more questions than answers – we can help. Our primary mission at AgingOptions is to assist people just like you as you plan for a healthy and secure retirement, free from the worry that you’ll exhaust your assets or end up as a burden to those you love. In order to help you accomplish your retirement dreams, we employ a strategy we call LifePlanning, a comprehensive approach to retirement planning in which all the vital elements of your retirement – finances, legal protection, medical coverage, housing choices and family communication – work interdependently. There’s no better retirement plan than a LifePlan from AgingOptions.
Don’t take our word for it. Plan now to attend one of our free LifePlanning Seminars, where you can bring your questions, get the answers you’re seeking, and see for yourself. There are several seminars coming up soon, so click here for details and online registration, or contact us during the week. It will be our pleasure to meet you soon at a LifePlanning Seminar near you.
(originally reported at www.kiplinger.com)