@bee: Corrected
Pfau linkWhile I'm generally a fan ofr Dr. Pfau, ISTM he skipped over some details and created some misimpressions. The first is that he appears to use HECM and "reverse mortgage" synonymously. Rather, an HECM is but one of three types of reverse mortgages. Being the most common type, and the one backed by HUD and providing some government protections, it is the type I'd likely look at first. But different types do exist, with different benefits, costs, and risks.
https://www.consumer.ftc.gov/articles/0192-reverse-mortgages#types"With a HECM, the home title is never turned over to the bank." Okay, but so what? One has the same risk of foreclosure regardless of who holds the title. When you buy a home, do you care whether you take out a mortgage (where you keep title), or you borrow the money using a deed of trust (where the trust gets legal title)? While foreclosure procedures differ, you're still subject to foreclosure either way.
https://www.lendingtree.com/home/mortgage/deed-of-trust-vs-mortgage/FWIW, here's what the FTC says about title: "In a reverse mortgage, you keep the title to your home. That means you are responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses." Of course you'd expect that in any case.
https://www.consumer.ftc.gov/articles/0192-reverse-mortgages#how"They need to have full equity in the home; there can’t be any other lien on the property." HUD begs to differ on HECMs: "You must ... Own the property outright
or paid-down a considerable amount"
https://www.hud.gov/program_offices/housing/sfh/hecm/hecmabouDr Pfau gives
four different approaches to managing sequence of return risk (I've cited this before). One is to use a cash buffer.. He describes three different ways of implementing that approach, one of which is to use a reverse mortgage line of credit. What I haven't seen him discuss (perhaps I have not looked hard enough) is why he advocates using a HECM over other types of reverse mortgages, let alone other types of credit.
ISTM that if you're looking at this for use as a cash buffer - a line of credit for a temporary loan that you might never call upon - a HELOC with lower up front costs could have lower total costs. OTOH, if you're thinking of using a reverse mortgage for something else, then you might still expand your search beyond HECMs. The FTC writes:
If you’re considering a reverse mortgage, shop around. Decide which type of reverse mortgage might be right for you. That might depend on what you want to do with the money.
https://www.consumer.ftc.gov/articles/0192-reverse-mortgages#shopping.
Dr. Pfau mentions using reverse mortgages as a SS bridge (to delay benefits). A 20
17 "CFPB report found, in general, the costs and risks of taking out a reverse mortgage exceed the cumulative increase in Social Security lifetime benefits that homeowners would receive by delayed claiming."
https://www.consumerfinance.gov/about-us/newsroom/cfpb-report-warns-taking-out-reverse-mortgage-loan-can-be-expensive-way-maximize-social-security-benefits/ Finally, the "gotcha" that concerns me with reverse mortgages (and I like the idea of reverse mortgages if obtained at reasonable cost and rates for a well defined purpose), is that you have to pay the money back when you move. How do you buy a new home if you have spent down your equity? It looks like there is a risk of being locked into your home for life, because you won't have enough equity left to move anywhere else.
Consumer Financial Protection Bureau:
What happens if I have a reverse mortgage [HECM] and I want to sell my home? https://www.consumerfinance.gov/ask-cfpb/what-happens-if-i-have-reverse-mortgage-and-i-want-sell-my-home-en-2095/HECM risks and disadvantages (citing CFPB):
https://www.elderoptionsoftexas.com/article-reverse-mortgage-pros-and-cons.htm
