HECM Reverse Mortgages
Up until now I have always shied away from Reverse Mortgages. They were simply too expensive! With the collapse of the the real estate market and the volatility of the stock market, retirees and financial planners have been scrambling to figure out a way to preserve portfolios. Now there is another alternative: FHA’s Home Equity Conversion Mortgage Program, or HECM for short.
HECM providers allow seniors access to their equity at a more reasonable rate than previous reverse mortgage providers. According to the website:
"A lender can charge a loan origination fee of up to $2,500 if the home’s appraised value is less than $125,000. If the home is valued at more than $125,000, lenders can charge 2% of the first $200,000 of the home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000."
This is a far cry from the 8% to 10% loans I’d heard about from other advisors when reverse mortgage first came out. See this 2008 USA Today article Reverse Mortgages aren’t for everyone for some sample costs.
Between now and 2019, 10,000 boomers are expected to turn 65 each day. According to Fidelity, the average retiree will face a $2,100 monthly shortfall. With some proper planning, a HECM may allow retirees access to cash over periods when their portfolios need to recover from a downturn in the market. While you could try to do this with a home equity line of credit, the monthly payment usually turns retirees off. It’ll be interesting to see how new techniques, such as the HECM Reverse Mortgage, change planning over the next couple decades.