A reverse mortgage can appear to be an attractive option for homeowners in retirement who require income, but wish to withhold from Social Security benefits until a later age. A new report by the Consumer Financial Protection Bureau (CFPB), however, shows the advantage of delaying Social Security is generally not worth the risk of taking out a reverse mortgage.
The report found the cost of a reverse mortgage can be more than what a homeowner would receive if he or she waited for full Social Security benefits. Reverse mortgages taken by those age 62 average seven years; by 69, the borrower would have paid 60 percent in costs—$2,300 higher than full Social Security benefits.
The report also shows that the value of the borrower’s home will likely not keep up with the pace of the reverse mortgage. A 62-year-old homeowner, for instance, with a home worth $175,000 at 2 percent annual appreciation, will have 61 percent equity by age 67, but only 16 percent equity by age 85.
“A reverse mortgage loan can help some older homeowners meet financial needs, but can also jeopardize their retirement if not used carefully,” says Richard Cordray, director of the CFPB. “For consumers whose main asset is their home, taking out a reverse mortgage to delay Social Security claiming may risk their financial security because the cost of the loan will likely be more than the benefit they gain.”
