Steven A. Sass, PhD - Johns Hopkins
Several recent research article Retirement planning generally focuses on the use of financial assets. However, home equity is the largest store of savings for most households entering retirement. Home equity has been an underutilized retirement asset due to behavioral and informational impediments. It remaines to be seen whether growing financial pressures on retirees to tap their savings will overcome these impediments.
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Wade Pfau, PhD – Princeton, CFA
Several recent research articles published in the Journal of Financial Planning have investigated how opening a standby line of credit through a reverse mortgage and strategically spending from this line of credit can help improve the sustainability of retirement income strategies. In this article, I show that the benefits of opening a home-equity conversion mortgage (HECM) line of credit extend beyond meeting spending needs.
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Gerald C. Wagner, PhD – Harvard
The HECM program offers several ways of accessing the monies available. Under the new rules, first-year cash availability is somewhat limited. Upfront cash may be needed to pay off any liens against the home. Additionally, a homeowner cannot combine a reverse mortgage with a home equity line of credit (HELOC).
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John Salter, PhD – Texas Tech, CFP
Our results suggest that many retirees, and even workers who qualify for the product who are drawing on savings to supplement their earned income, could benefit from the use of an HECM Saver reverse mortgage. Despite growth in demand for reverse mortgages over the last decade, current estimates suggest that less than 2 percent of eligible homeowners elect to use a reverse mortgage in retirement.
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Shaun Pfeiffer, PhD – Texas Tech
Reverse mortgages represent one option retirees can use to tap home equity in retirement. However, retirees historically have been resistant to the idea of reverse mortgages despite the significance of home equity as a portion of total wealth. This resistance in the past has been attributed primarily to high upfront fees of up to 7 percent, with origination costs, of the home value.
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David W. Johnson, Ph.D.; and Zamira S. Simkins, Ph.D.
Retirement Trends, Current Monetary Policy, and the Reverse Mortgage Market. Although Americans are living longer, they are not necessarily living in better health. As a result, the need for long-term care and health care is also increasing. According to the Employee Benefit Research Institute (2012), a typical 65-year-old couple will need an estimated $305,000 to cover out-of-pocket health care costs over their lifetime.
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Tom Lauricella
Advisers Reverse Thinking on Reverse Mortgages – A reverse mortgage is essentially a loan that allows the owner of a house or condo to convert some of the equity in the property into cash. Such mortgages differ from a traditional loan in that the money doesn’t need to be repaid until the home is sold or no longer used as a principal residence.
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Michael Kitces
Is A Reverse Mortgage Better Than Keeping A Traditional Amortizing Mortgage In Retirement? While the current low-yield environment has presented significant challenges to retirees trying to generate retirement income, the upside is that low yields have also driven down borrowing costs to record lows. As a result, retirees are increasingly deciding that perhaps keeping a mortgage and not paying it off is a good idea after all.
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