As much as I believe in the value of incorporating housing wealth into improving retirement outcomes, there are always caveats when using these tools.
I have written extensively on the use of the Home Equity Conversion Mortgage (HECM). You can easily find previously written articles here.
One has to balance two issues when determining whether or not to implement the HECM and the timing of pulling the trigger:
1. Delaying the implementation of the HECM mortgage can have the following negative consequences:
-The reverse mortgage program in terms of availability, access, and fees may change in the future possibly substantially and to the homeowner’s disadvantage.
-An increase in interest rates in the future would reduce the amount of equity available for the homeowner.
-A decrease in the value of the home will reduce the amount of equity available for the homeowner.
2. Delaying the implementation of the HECM mortgage may be wise if the sale of the home is contemplated within the next few years
Because the closing costs and insurance costs of using the HECM mortgage are currently roughly 3% of the value of the home, it’s important to enter into the transaction with the knowledge that the homeowners will be there for a relatively long time period. If the HECM mortgage and the associated costs are undertaken and the home is sold after a relatively short period of time, the initial costs and benefits are wasted.
It takes great wisdom to balance these two competing positives and negatives above in order to make sure that the execution of the strategy is done at the opportune time.
If you have any questions, please feel free to contact me.