Reverse Mortgages: Take the Longevity View
It’s a reversal in reverse mortgages. And that may mean a boon for boomers.
The reverse mortgage, long a pariah in financial planning circles, lets homeowners tap home equity and defer repayment until they sell, move or pass away. As interest on the loan builds, home equity shrinks. Leading up to the financial crisis, many senior homeowners cashed out big chunks of home equity as lump sums, often to pay other debts. Whether borrowers had the cash flow to afford the home’s ongoing costs — property tax, insurance, maintenance — was another question. By 2010, nearly 10 percent of reverse mortgages were in technical default after falling behind in tax and insurance payments.
The stigma has been so bad that reverse mortgages were left off the financial planning curriculum at Texas Tech University until a few years ago. They graduated to a brief mention as a last resort. Now, strategies for using reverse mortgages in retirement get a full day, says John Salter, assistant professor of financial planning at the university and a planner at wealth management firm Evensky & Katz. Continue reading “Take the Longevity View (Reverse Mortgages)” »