MarketWatch: Reverse Mortgages Could Be ‘Expensive’ Way to Delay Social Security
While a reverse mortgage could be a viable option for a retired senior to supplement cash flow primarily from Social Security benefits, it could be an expensive way for some seniors to delay security payments. social later in life. This does not mean that the product is without potential merit for some people, but such a tool should be viewed with a full understanding of the potential advantages and disadvantages.
That’s according to Paul Brandus, financial columnist in a new article published by MarketWatch. A reverse mortgage comes with a certain reputation baggage, he says, but that doesn’t mean such an option should be ruled out out of hand.
“Given how heavily millions of seniors rely on Social Security – the average monthly check this year is a modest $ 1,543 – a reverse mortgage could make all the difference for many people,” writes- he. “Of course there is more to it, and while a reverse mortgage might be a wise move for some seniors, it could be a bad move for others.”
For example, reverse mortgage listings aimed at seniors do not include information about what constitutes a maturity event for a reverse mortgage, says Brandus. If a borrower dies, moves, or sells the home, the negative amortization loan balance becomes due. The borrower is still required to continue paying for maintenance, property taxes and home insurance, which the columnist says is also excluded from industry advertisements.
Advertisements for the reverse mortgage industry also do not explicitly mention that taking such a loan can negatively affect a borrower’s ability to pass the home on as a bequest asset, depending on how the balance is satisfied after becoming due and payable, he said. .
One source of information that may be useful is the Boston College Center for Retirement Research (CRR), which recently published information on the habits of seniors regarding the use of home equity in retirement.
“By addressing both sides of the problem, [CRR] notes that “home equity has great potential to ease the financial woes of retirees – after all, about $ 8 trillion in wealth is locked away in the homes of the elderly,” Brandus writes, citing research from CRR. “Taking advantage of it can indeed reduce the financial stress that many retirees can experience as they age. “
One of the reasons reverse mortgages have yet to “pop up” with seniors could be due to lingering reputation issues, Brandus said citing a CRR study. The social security angle is also one that can lead a senior to explore a reverse mortgage option, he says.
“The longer you wait to take Social Security, the bigger the benefits,” he says. “Why not take out a reverse mortgage at, say 62, and use that money while your Social Security benefits go up? It looks like a bridging loan. But [Consumer Financial Protection Bureau] (CFPB) calculates that this is generally not a good idea due to the interest and fees mentioned above.
The cost of this option, as outlined in a 2017 report released by the CFPB, is cited by Brandus, whose findings have been criticized by officials at the National Reverse Mortgage Lenders Association (NRMLA) and by the researcher. retired Jamie Hopkins.
Read the editorial on MarketWatch.