What is the New Reverse Mortgage? Should You Take a Look?

You may have recently seen a new reverse mortgage ad on TV.  It talks about the new reverse mortgage.  Is it really new?  The answer is both yes and no.  Reverse mortgages have evolved considerably, but they are still a product that help older Americans fund retirement by enabling them to tap into some of their home equity. Developed by the National Reverse Mortgage Lenders Association (NRMLA), the new reverse mortgage campaign is designed to educate consumers and raise awareness for the product. Are the New Reverse Mortgages Really a Smart Choice for Retirement? The new reverse mortgage advertisement describes a long string of smart choices that baby boomers may have already made – going to college, finding the right spouse, buying a home, working hard, saving and investing for retirement. However, many households are finding out that despite good intentions and hard work, they are still not adequately prepared to pay for retirement. As the nation’s 78 million boomers head into retirement, long life spans, increasing healthcare costs and cost of living increases are adding up to be more than they are prepared for. Getting a reverse mortgage may indeed be another smart choice for you to make. As the advertisement describes — Social Security and your own savings might not give you a secure retirement on their own. However, if you also get a reverse mortgage, you might indeed have the retirement plan you need. The new reverse mortgage rules have been backed by finance experts such as Jane Bryant Quinn, who says that reverse mortgages need to be part of retirement planning. She continues to say that reverse mortgages may be even more important than asset allocation for retirement planning: “Given the relative unimportance of asset allocations, financial advisers will be of greater help to their clients if they focus on a broad array of tools – including working longer, controlling spending, and taking out a reverse mortgage,” she said in a statement. What Hasn’t Changed for the Reverse Mortgage?  What is Not New? The good news is that all of the great benefits that reverse mortgage borrowers received in the past are still available with the new reverse mortgage program.

• Home ownership: With a reverse mortgage, you will continue to retain full ownership of your home.
• Improved cash flow: If you have an existing mortgage, a reverse mortgage enables you to pay off that loan to improve your monthly budget. Some borrowers also get access to cash to use in any way they want or need.
• Government backed: In the event your lender goes out of business, the government guarantees that you will still have access to any remaining proceeds from the loan.
• Non-recourse: if your reverse mortgage ends up exceeding the value of your home, you will never have to repay more than what your home is worth at the time of sale.
• Options: Both fixed and adjustable rate loans are still available.

“We recognize that a reverse mortgage is not a solution for everyone, but with sensible changes to the HECM program being implemented by HUD, we thought it’s time that homeowners take a fresh look to see if a reverse mortgage might be useful to them,” said Peter Bell, President & CEO of NRMLA. “Our goal is to give consumers an opportunity to make an informed decision, not stay away because of outdated misperceptions.” What’s New? New Rules for Reverse Mortgages… The Home Equity Conversion Mortgage (HECM) is the most popular reverse mortgage program available and allows borrowers 62 years and older to borrow against the equity they’ve built up in their home. Over the last nine months, the program has gone through important changes as a result of the passage of the 2013 Reverse Mortgage Stabilization Act by Congress to make the product safer for consumers. These changes include:

• Updating the amount of money borrowers receive from the loan. Those 65 years and older will likely receive more money than before.

• Restrictions on how much money borrowers can receive upfront at the time of closing.

• Protections to ensure borrowers have the funds to pay the required taxes, insurance, and home upkeep.

The Department of Housing and Urban Development, which administers the HECM reverse mortgage program, is also planning to introduce a financial assessment component to help determine whether borrowers would have the ability to fulfill their financial obligations. These changes are designed to make the HECM reverse mortgage product safer and more viable. The consumer education effort, underway in the three pilot cities of Philadelphia, Denver, and Seattle, will also focus on helping people figure out their future retirement needs and examine all resources available to them—including home equity—as they plan for retirement. How Do You Get a New Reverse Mortage? All licensed reverse mortgage lenders are offering the new reverse mortgage.  You can get matched to a prescreened reverse mortgage lender here.  You can also get a personalized assessment for whether or not a reverse mortgage is right for you.