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Who Should Get an HECM? Solid Answers to Common Questions

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With all the articles we’ve read and conversations we’ve heard here at AgingOptions about the Home Equity Conversion Loan, or HECM – commonly called the reverse mortgage – the question millions of older homeowners are still asking themselves is simple: “Is a reverse mortgage right for me?” We can’t count the number of times we’ve been asked that question, on the radio, in a seminar on at our office, and our answer is typically, “It depends.” Everyone’s situation is unique and a reverse mortgage, while a Godsend for many, is by no means right for everyone, and we tend toward a more conservative view of this issue, as we’ll discuss below.

In our local Seattle Times on a recent weekend we discovered this insightful and well-written article by a man named Jack Guttentag who called himself “The Mortgage Professor.”  In fact, that title isn’t far off the mark: Guttentag is a Professor of Finance Emeritus from the Wharton School of Business, and what he has to say about reverse mortgages seems to us generally well balanced, with a few caveats. His views seem to represent yet another financial expert who is now an outspoken believer in the power of this versatile financial tool called an HECM.

The first question he tackles in the Times article is, “Which seniors should reject a HECM, and which should consider one?”  Guttentag identifies three broad categories of seniors for whom a reverse mortgage is probably the wrong financial solution:

  • Seniors whose financial situation is so secure that a reverse mortgage is unnecessary;
  • Seniors who are determined to pass a debt-free house to their heirs;
  • Seniors who want those presently living in the house to be able to keep living there after the homeowner’s death – family members other than a spouse who are too young (below age 62) to qualify for a reverse mortgage.

If you fit into one of these three categories, the Mortgage Professor says you should “say no” to a home equity conversion loan. However, we might argue that you should at least (pardon the pun) do your homework and talk to a qualified, objective reverse mortgage expert before you make that decision. Don’t rule out the power of a reverse mortgage until you’ve gotten some unbiased professional advice, because your financial circumstances may change, and there may be a way to solve some of the other impediments standing in your way.

How about the many seniors who, in the words of Jack Guttentag in the Times, should say yes to an HECM? This is a much longer list, and we won’t include every one of the ten criteria he mentions, but here’s a sampling. According to this article, you might want to look into a reverse mortgage if:

  • You expect your retirement income to drop but your mortgage payments to continue;
  • You’re living on Social Security or a small pension and need an indefinite source of supplementary income;
  • You’re worried that your retirement nest egg won’t last through your retirement years;
  • You need a way to manage unexpected expenses, especially if you’re on a fixed income;
  • You want to delay Social Security but need income now to bridge the gap while you wait.

If any of that sounds like you – and we think those conditions and many of the others listed by Guttentag in the Times article apply to a large number of retirees – then the reverse mortgage could, he suggests, be a big part of the solution to your financial worries in retirement. But we would add a few cautionary notes. As Rajiv Nagaich says, “Our view is that anyone who desires to live in their current home – after they’ve made sure that the home is age-friendly and that their family or other care workers will be there to support them when they need it – should get a line of credit established. I see the line of credit as a hedge and a financial tool.  But some of the other uses suggested in this article, such as need for basic income, should be approached with caution because in my view it’s better to avoid depleting the last asset you have, which is your home.” Rajiv recommends that low-income seniors explore rent-controlled housing, and then be ready to move to a care facility at a later time, as potential HECM alternatives.

The article is written in a Q&A format, so it deals with some of the basics of an HECM. For example, Guttentag explains why a reverse mortgage is called by that name: it’s because in a reverse mortgage the loan balance starts out low and grows over time which is just the opposite of a standard mortgage. He also answers the common question, “Does taking a reverse mortgage result in no home equity passing to my heirs?” The answer is, possibly, but probably not: it depends on how the borrower uses the reverse mortgage, how long the borrow lives, and how much the home appreciates. These are all scenarios that a reverse mortgage professional can review with you so you and your family will know what to expect.

Finally, for those among us who are procrastinators, the Times article wraps up with this question: “What are the advantages and disadvantages of waiting before taking out a reverse mortgage?”  Guttentag’s reply: if you wait to take out an HECM, you’ll generally be able to draw out more because you’ll be older. You might be able to borrow more because your home has appreciated. “However,” he writes, “both of these effects can be swamped by a rise in interest rates, which reduces draw amounts. The best strategy for borrowers who have no current need for funds but anticipate that they will sometime in the future is to take a credit line now and let it sit unused while it grows in size. That way, if market interest rates rise, the reduction in draw amounts that results will be at least partially offset by a rise in the unused credit line.”

Our recommendation is for you and your spouse to read articles like the column by the Mortgage Professor, and then to sit down and consult with a trusted expert like Laura Kiel, whose services we endorse. Only by spending time going over your own situation can you make a decision that best suits your needs. If you’ll contact us at AgingOptions we’ll gladly refer you to Laura, because we know you can rely on the professional information she’ll provide to you. But remember that decisions such as whether a reverse mortgage is right for you should not be made in a “planning vacuum.” Instead, you need the type of holistic approach to retirement planning that we practice here at AgingOptions. With our strategy called LifePlanning, we combine all the elements of your life in retirement – finances, housing, medical care, legal affairs and family communications – into a well-crafted LifePlan, one in which all these parts mesh together seamlessly. There’s no other retirement plan like it.

There’s a simple, no-obligation way to find out more: come see Rajiv Nagaich at an upcoming AgingOptions LifePlanning Seminar. These free events held throughout the area take just a few hours but will start you on the road to a retirement that is truly joy-filled and secure. You can click here for details including online registration, or call us for assistance during the week. It will be our pleasure to show you the power of an AgingOptions LifePlan.

(originally reported at

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