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5 Straightforward Ways a HECM Can Ease Retirement Risk
Jack Guttentag, better known as ‘The Mortgage Professor’ explores several ways that a Home Equity Conversion Mortgage can help ease retirement for today’s older homeowners. Guttentag’s article balances consumer education with the possible strategic uses of a reverse mortgage with five possible applications. 
While numerous national publications have espoused the strategic use of a HECM line of credit to prolong investor’s portfolios the classic uses of a reverse mortgage also hold promise for older homeowners.
1. Conversion. It’s no secret. Far too many older homeowners carry a mortgage into their retirement years, often beyond their life expectancies. The burden of monthly mortgage payments is especially problematic for retirees on a fixed income wrestling with increasing living and healthcare expenses. Paying off one’s existing mortgage and refinancing into a reverse mortgage provides increased monthly cashflow and peace of mind for many. In his example the Mortgage Professor shows the typical mortgage balances that can be paid off by age and home value. Keep in mind these numbers are based on today’s low interest rates.
2. Postponement. Too often many seniors take Social Security as soon as they are eligible for payment. Guttentag writes “For most seniors, waiting until age 70 before collecting social security, as opposed to taking a smaller amount earlier is an…
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2 Comments
While these five areas are important, the information provided in the article is insufficient to reach a reasonable conclusion even in regard to mortgage refinancing or H4P. Dr. Guttentag is an expert on mortgages.
The section on delaying Social Security benefits sounds simple but it is not. The average American now is projected to live to 78.8 years old per the RMD article at
http://reversemortgagedaily.com/2016/03/27/cognitive-aging-may-hinder-reverse-mortgage-use/#more-25457
Recently an article came out and argued that when it comes to Social Security benefits, potential HECM borrowers should be more worried about poverty risk than mortality risk. That conclusion is ridiculous especially for those who reasonably expect to pass assets to heirs. Most scenarios looking at the delay strategy using a HECM, do not look at the senior’s specific life expectancy, financial facts, and circumstances, but rather longevity generally. They do not consider the payback period and risk of loss at various ages. They also fail to analyze risk of any type other than perhaps addressing it in generalities.
Social Security benefits planning needs to be provided by a competent planner who has wide and diverse experience with seniors in many different situations. A HECM may indeed be a useful tool in this regard but in many cases it will increase risk rather than mitigating it.
Great information and strategies to consider. My personal favorite is #4. The Back Up Plan.