HECM Reverse Mortgages

Up until now I have always shied away from Reverse Mortgages. They were simply too expensive! With the collapse of the the real estate market and the volatility of the stock market, retirees and financial planners have been scrambling to figure out a way to preserve portfolios. Now there is another alternative: FHA’s Home Equity Conversion Mortgage Program, or HECM for short.

HECM providers allow seniors access to their equity at a more reasonable rate than previous reverse mortgage providers. According to the website:

"A lender can charge a loan origination fee of up to $2,500 if the home’s appraised value is less than $125,000. If the home is valued at more than $125,000, lenders can charge 2% of the first $200,000 of the home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000."

This is a far cry from the 8% to 10% loans I’d heard about from other advisors when reverse mortgage first came out. See this 2008 USA Today article Reverse Mortgages aren’t for everyone for some sample costs.

Between now and 2019, 10,000 boomers are expected to turn 65 each day. According to Fidelity, the average retiree will face a $2,100 monthly shortfall. With some proper planning, a HECM may allow retirees access to cash over periods when their portfolios need to recover from a downturn in the market. While you could try to do this with a home equity line of credit, the monthly payment usually turns retirees off. It’ll be interesting to see how new techniques, such as the HECM Reverse Mortgage, change planning over the next couple decades.

About the author

Richard T. Feight, CFP®

Among independent financial advisors, Mr. Feight is one of the most well known and highly respected “Fee-Only” financial planners. Since 1997, Rich has dedicated his career to offering low cost “Fee-Only” comprehensive financial planning and investment advice. Rich assists his clients in organizing their finances so that they can retire on time.Rich is a graduate of Michigan State University where he received his degree in Finance. Rich has earned the Certificate of Financial Planning from The College for Financial Planning in Denver , Colorado that was comprised of intense graduate level classes grounding him in the various foundations of financial planning. He is a CFP® (Certified Financial Planner®) since 2001, meeting the experience, education requirements and passing the two-day, 10 hour exam, making him one of the few in the country who hold the designation. Since 2003, Rich has subscribed to the stringent and mandatory annual educational hours, experience, and code of ethics to meet the requirements to be a NAPFA Registered Financial Advisor. Out of the 800,000 individuals in the country who claim they are financial advisors/planners, fewer than 1,300 in the country qualify for the membership; Rich is one of them.

Rich is the President of the Financial Planning Association (FPA) of Michigan . The FPA of Michigan is one of largest and influential chapter in the country. Rich was recently named President for Transportation Toastmasters Club 4776 downtown Lansing . He has been quoted in both local and national media from Noise Magazine to CNBC, and Bloomberg, and industry news publications such as Investment News and Financial Advisor Magazine. Rich enjoys public speaking and has spoke at industry educational meeting, high schools, and executive investment clubs, AARP conferences, and business educational seminars for companies looking to educate their employees. Rich views his role as a Fiduciary for his clients as the single biggest key to any planning relationship and strives to provide the most competent, unbiased and objective advice in the financial planning profession today.

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