Finding a HECM Use for Every Income Bracket

June 19th, 2017

While reverse mortgages have long been seen as a product of last resort, professionals in the industry know that opinion is changing — and now a new blog post shows the different ways that people can use Home Equity Conversion Mortgages no matter their financial situation.

Over at Tools for Retirement Planning, personal finance blogger Tom Davison maps out Home Equity Conversion Mortgage strategies for three types of potential borrowers: “well funded,” “constrained,” and “underfunded.”

For instance, a “well funded” borrower may have planned well for retirement, but could use a reverse mortgage to buy a new home — either larger or smaller than the current property — or remodel his or her existing home to age in place safely and comfortably. On the other end of the spectrum, an “underfunded” retiree could take out a HECM and pay down high-cost debt, cover the cost of necessary medications, or even just keep the heat on in the winter.

In the middle, “constrained” borrowers could potentially use reverse mortgage proceeds to defer Social Security payments, supplement required minimum distributions from retirement accounts, or just to have a little extra cash to spend on small luxuries like visiting grandchildren, Davison writes.

Davison based these categories on a recent report from the Center for Retirement Research at Boston College, in which economist Steven Sass found that consumers will increasingly need to tap into home equity in retirement, but remain reluctant due to “strong behavioral and informational barriers.”

In his March 2017 brief, Sass split households aged 65 to 69 into five groups based on equity and financial wealth, and found that traditional savings only exceeded home equity for the richest fifth of the U.S. population — while home equity accounted for the overwhelming majority of retirement wealth for the second and third quintile of older Americans.

“The value reverse mortgages could bring to the aging U.S. population starts with the breadth of users and uses,” Davison writes. “The value and breadth also challenge homeowners, financial professionals, and the reverse mortgage industry to find good matches between an individual homeowner’s situation and their highest and best use of a reverse mortgage.”

Read Davison’s full piece here.