Five alternatives to the reverse mortgage

Despite this record increase in retirement home equity, the popularity of reverse mortgages remains low for older Americans. In 2020, only 42,000 home equity conversion mortgages (HECMs) were sold, down in half from 2010, according to US Department of Housing and Urban Development (HUD) data obtained by the Center for Retirement Research (CRR) at Boston College.

Citing a 2017 Consumer Financial Protection Bureau (CFPB) report, the CRR noted that one possible reason for the decline is that reverse mortgages do not conform to plans many seniors may have for their properties.

“A reverse mortgage reduces the equity homeowners have in their homes,” the report says. “Homeowners who want to sell their home after taking out a reverse mortgage are particularly at risk because the loan balance will likely increase faster than the value of their home appreciates. This could limit options for moving or dealing with a financial shock. “

What should homeowners consider before taking out a reverse mortgage?

A reverse mortgage is designed for homeowners in retirement age who have either paid off their mortgage or built up a lot of equity in their home. This type of mortgage is for homeowners who want to take advantage of their home equity to access a fixed monthly payment, a line of credit, or a combination of both, without losing ownership of their property.

Reverse mortgages are often tax free, and repayments are deferred until the owner moves out, sells the home, is unable to pay property taxes or insurance, or dies. After that, the property is sold and any excess goes to the owner or his heirs.

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