In recent years, a lot of older Americans have looked to a reverse mortgage as one of their retirement tools. For those who are age 62 or older, this type of mortgage allows them to borrow against the existing equity in their home and not have to repay the principal balance or interest assessed until after their passing. At that point, the home is sold and the balance and any interest and fees are tendered to the lender, with the remainder of the funds being allocated to the estate and its beneficiaries.
But new reverse mortgage laws are actually making retirement planning more feasible, say the leading experts. When used properly as part of a retirement plan, experts like Jamie Hopkins, associate professor of taxation at The American College in Bryn Mawr, Pa., and co-director of the New York Life Center for Retirement Income, says that they can improve the security of retirees.
The Reverse Mortgage Stabilization Act of 2013 is of specific note. It helped balance the mix of applicants being approved for a reverse mortgage in attempts to bring more synergy to the process and to prevent predatory lending.
Previous to this law, just about anyone of qualifying age and with the right amount of equity in their home could get approved for these loans. After monitoring revealed that some applicants were unable to maintain their homes or pay the taxes and insurance, leading to a foreclosure and eviction, new laws were enacted to help prevent this fallout and bring more balance to these loans.
The updates to this program now mandate that borrowers have to prove they are able to pay the property taxes, homeowner's insurance and annual upkeep in order to qualify. Income and credit score are still nonfactors in the approval process. But the basic ability to maintain the home, protect it via an insurance policy and pay the taxes due on the property are now part of the approval process.
In addition, new rules on reverse mortgages help non-borrowing spouses stay in the home should the borrowing spouse pass away. Combined, these rules and laws help preserve a powerful retirement vehicle that could have otherwise faded away. For example, if the new laws had not been passed, the reverse mortgage industry could suffer the setback from an unrecoverable influx of foreclosures resulting in evictions, marring what is actually a realistic retirement tool for millions of Americans.
"All of these changes, combined with increased awareness about the proper use of reverse mortgages, have set the stage for better and more comprehensive retirement income plans that have the capacity to strategically utilize home equity as an income source," Hopkins wrote.