The Home Equity Retirement Option: a better alternative to the reverse mortgage
This is a binding contract between a senior citizen homeowner and an investor under which the homeowner receives cash equal to a percentage of his equity and the investor acquires the right to buy the property at a discount upon the death of the homeowner.
The reverse mortgage industry is growing at an extraordinary rate due to the convergence of these demographic and economic developments:
- The baby boomers are beginning to retire
- They have inadequate savings for retirement
- Company pensions have been disappearing for years
- Section 401(k) plans have suffered large losses recently
- Social Security is likely to be cut back
- According to AARP more 660,000 reverse mortgages were issued between 1990 and 2010 and only last year more than 78,000 were insured by the Department Of Housing And Urban Development.
These developments are equally applicable to the Home Equity Retirement Option which is an alternative to the reverse mortgage, has significant advantages over the reverse mortgage and is free of questions that have been associated with the reverse mortgage as well as legal regulations applicable to the reverse mortgage.
The Home Equity Retirement Option and the Reverse Mortgage compared:
- Under a reverse mortgage your property is subjected to a lien and you assume a debt that grows over time. Under HERO there is no lien and no personal debt.
- Under some reverse mortgage you must obtain mortgage insurance. That is not a requirement of HERO.
- Reverse mortgages have been criticized as costly and confusing.
- Reverse mortgages are subject to federal and state regulations. For example, under New York law a homeowner 70 or older cannot enter into a reverse mortgage if she or he earns more than 80% of the median income in their county. HERO is not subject to such regulation.
- Under HERO, the subject property is pre-sold in effect, so that costs and delays often involved in the resale will be avoided.