They also say that half of those rejected for HELOCs or second liens in 2018 were turned down because they could not meet the monthly payments. “Simulations show that between 26% and 36% of rejected HELOC and second lien applicants likely could have accessed a reverse mortgage,” they wrote.
The paper stresses that more people are entering retirement with mortgage debt, and as other resources dwindle, the growth in housing debt can be seen “as evidence that older households are effectively consuming home equity in retirement.”
Tread Lightly
Financial advisors are treading lightly with reverse mortgages
“I’ve looked into [them] on occasion for my clients,” says Vince Clanton of Chancellor Wealth Management in Atlanta. “The product has very high costs associated with the transaction. The sales cost is marginal, but there is an insurance component to protect the lender, and I think that is very expensive. The embedded interest rates are variable, and the cash available is limited. If someone is still working, a cash-out refinance is possible. If in retirement, it may be that the best option is to sell the home, and downsize.”
Benjamin Offit of Offit Advisors in Towson, Md., however, says these vehicles can be good ways to tap equity without selling your house. “When the market is volatile, it can be helpful to have a non-market correlated asset to draw from if your portfolio is down and these assets can help with this regard,” he says.
“These tools can also be used as a way to access capital on a tax-free basis and do Roth IRA conversions, or as a bridge to delay Social Security benefits, or to help supplement long-term-care costs. Essentially, your house is a bucket money beyond just a tangible place to live.”