Waiting as long as you can to take out a reverse mortgage may be one way to limit your chances of outliving the proceeds. The Consumer Financial Protection Bureau warns that younger retirees with longer life expectancies have a greater chance of using up all of their home equity with a reverse mortgage. This isn’t a problem if they are able to age in place—stay in their homes for life—but it is a problem if they want or need to move later on. So, how do you avoid outliving your reverse mortgage? Take one out when you are younger. Now reverse mortgages can be taken out at 55 years young instead of at the age of 62.
After selling the home and paying what they owe on the reverse mortgage, early age retirees might not have enough money left to move or to pay for ongoing living and medical expenses.
What Can You Do
Future increases in interest rates could decrease how much you can borrow even though you are older. Jack M. Guttentag, professor of finance emeritus at the Wharton School of the University of Pennsylvania, studied the issue. He found that a 62-year-old who took out a HECM reverse mortgage and waited until age 72 to start using his line of credit could increase their credit line by 17% by waiting those 10 years if interest rates stayed the same; versus waiting until age 72 to take the loan out, to begin with. However, if interest rates doubled, the line of credit increases would double as well. Thus it can actually make sense to be pro-active and take out a reverse mortgage line of credit plan as early as possible and then leave the line untouched for as long as possible to maximize its growth potential.
If you’ve already taken out a reverse mortgage and think you may be at risk of running out of proceeds, call us to discuss changing your payment plan. As long as you didn’t go the fixed-rate, one-time lump sum route, you can change your payment plan—provided you can stay within your loan’s principal limit. The big question is whether you’ve already reached or are close to reaching the principal limit. Changing your payment plan is much simpler than refinancing and requires only a $20 administrative fee. However, sometimes refinancing will significantly increase the available funds. Let’s find out together and do a free comparative analysis for you.