Are reverse mortgages right for wealthier seniors?

by Ryan Smith23 Aug 2016
Reverse mortgages can be a valuable tool to provide retirees with liquidity. But, with limits on property value for a HECM loan, are reverse mortgages worth it for the wealthy? Jack M. Guttentag, professor of finance emeritus at the University of Pennsylvania’s Wharton School, argues that they can be – at least, in certain cases.

Writing for the Huffington Post, Guttentag admits that the HECM program isn’t primarily designed to help people with more expensive homes, since it calculates maximum withdrawal amounts based on a property value of $625,000.

“If your house is worth $1 million, or $10 million, you can’t draw more than the amounts available on a home worth $625,000,” Guttentag writes. “Further, although higher value properties reduce the risk of loss to the FHA, the mortgage insurance premium is the same for a property worth $1 million and one worth $625,000.”

However, Guttentag maintains that owners of more expensive homes can still use the HECM program to their advantage.

“The key question, which is the same for all senior homeowners, is whether the withdrawable amount that is available on the owner’s house can make a significant difference in her lifestyle,” Guttentag writes.

He maintains that if that’s the case, then the argument for getting a reverse mortgage is as strong for a $1 million house as for a less expensive one. The reason, he says, is that owners of homes with excess equity will retain it when leaving the program – whether by selling the house, moving out or dying.

“An owner with excess equity whose intent is to leave the equity to her estate, can do exactly that,” Guttentag writes.
 

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