Consumer Reports: Reverse Mortgages May Be ‘Safe’ Way to Tap Home Equity, With Cautions
Finding additional sources of liquidity without relying on one’s own assets that can be sold or operated will often involve the use of products or instruments of financial services institutions, which could add risk to some people. However, safe exploitation of home equity is certainly possible, and a reverse mortgage could be one of those safe options for borrowers.
That’s according to a column newly published in Consumer Reports. While reverse mortgages are included among other more commonly used home equity operating income, a reverse mortgage is at least worth considering based on the borrower’s financial goals. potential, says the chronicle.
According to Greg McBride, chief financial analyst at online financial site Bankrate.com, it can be a particularly useful tool for those who need cash and are able / willing to borrow for cash. ‘a house.
“A reverse mortgage would eliminate the monthly mortgage payment, significantly reduce household expenses, and could allow borrowers to leverage their accumulated equity through a lump sum, regular payments or a line of credit,” McBride told Consumer Reports .
One element, McBride says, that makes a reverse mortgage particularly useful is the ability for borrowers to use the loan proceeds to delay Social Security enrollment until later in life, when these benefits can be maximized. .
“It can also be used as a tool to avoid having to use retirement accounts, either in downturn years or to allow more time for tax-efficient growth. [like a Roth IRA,]” he added.
However, Consumer Reports also writes that reverse mortgages can be “complicated, risky and controversial,” relating to another article in the publication written in 2016 detailing some of the reforms made to the reverse mortgage program at that time.
“A big concern is that when the loan holder dies, the ownership of the house is transferred to the bank,” writes Consumer Reports, which incorrectly attributes reverse mortgage lenders. “If the surviving spouse is not also on the loan, they often risk eviction unless they can afford to buy the house from the lender. Plus, these compound interest loans can be expensive. And seniors who cannot afford taxes, insurance, and home maintenance while living in the property risk defaulting on their loan and losing their home.
The article also describes the reforms introduced in the Home Equity Conversion Mortgage (HECM) program in 2017, regarding financial assessment and the ability of borrowers to maintain their loan obligations.
“But Consumer Reports believes more reforms are needed to better protect borrowers,” the section concludes, without describing the reforms the organization believes would be most helpful.
Read the article on Consumer Reports.