Recently, we’ve spent time catching up on some reading. There have been a number of good articles on reverse mortgages published recently by respected sources like Kiplinger and others. A new book on reverse mortgages (The Complete Guide to Reverse Mortgages), has also hit bookstores within the last couple of months and we’re now in the process of reading it. The recent boom in reverse mortgage growth has definitely spawned a spin-off boom of new literature targeted at seniors wanting to learn more about this “new” retirement financing tool.

Most of the reading materials we’re seeing are accurate, even-handed and clearly written.

But we can’t help noticing that they all are missing some extremely important information about reverse mortgages. In fact, in the materials we’ve seen, we don’t recall seeing even a passing mention of this information - information that we believe is absolutely crucial for anyone considering a reverse mortgage to be aware of.

Length of Reverse Mortgage Loans

So, what information are we talking about?

Actual Length of Reverse Mortgage Loans - i.e., the number of years that homeowners who’ve taken out a reverse mortgage actually have their loans.

Most reverse mortgage articles and guidebooks do a good job of explaining why the number of years a borrower expects to remain in their home is so important: reverse mortgages make financial sense only if the borrower is confident that they will be able to stay in their home for at least five to seven years. Paying steep upfront closing costs for shorter-term loans just doesn’t make sense (unless, of course, there are no alternatives).

But the popular reverse mortgage literature fails to report on significant research showing that many reverse mortgage borrowers end up doing exactly that. For example, research shows:

- 1 of every 5 HECM reverse mortgages (by far the most popular kind of reverse mortgage) is terminated within three years;

- nearly 1 of every three HECMs is terminated within four years;

- less than 1/2 of all HECMs extend beyond six years.

This data comes from a HUD study published earlier this year and, in our minds, are some pretty noteworthy statistics. Seniors actively considering a reverse mortgage could certainly find value in comparing their personal expectations with the experiences of actual borrowers. It may well be that many HECM borrowers are being too generous in estimating their future ability (or desire) to “age in place”.

We highlighted findings of the HUD study in a post several months ago about HECM reverse mortgage terminations. The graph below is taken from data in this HUD study and shows loan terminations for different categories of borrowers over time.

Similar findings were reported in another study from 2004 (Mortality, Moveout and Refinancing as Factors in HECM Reverse Mortgage Payoffs):

(J)ust under 80% of HECM loans can be expected to remain unpaid for at least 3 years; about half will have remained unpaid through 7 years; and that over 30% of loans will remain open beyond the time span covered by the dataset, 9-3/4 years.

We’re not sure why the “popular” reverse mortgage literature leaves this information on the sidelines. But we do think it is important enough to report here. We also think further research into the reasons why so many reverse mortgages are short-lived would be very worthwhile.

Having this information may cause senior homeowners to look at other reverse mortgage options more closely or, at least give pause to consider how they expect their reverse mortgage experience to compare.

Social tagging: HECM > HECM research > Reverse Mortgage > reverse mortgage articles > reverse mortgage termination

A Few More Related Articles of Interest:

HECM Mortgage Payoff Types by Borrower Age

HECM Loan Terminations - Reality Check for Potential Borrowers

HECM or HELOC? A Tool to Help You Decide

The DIY Reverse Mortgage

HECM Growth Projections from CBO