"Shannon Hicks, co-founder of Reverse Focus and editor in chief of HECMWorld, said in video published Monday that even though the proposal sounds like an easy and attractive solution, it comes with major drawbacks. While the change could help buyers access the housing market, Hicks warns it could weaken long-term retirement security. Under current law, early withdrawals face a 10% penalty and income taxes. The proposal would remove the penalty but not the taxes."
"Borrowers who use a HECM for Purchase typically make no monthly mortgage payments, although they must maintain the home and pay taxes and insurance, Hicks explained."
The proposal would remove the 10% early-withdrawal penalty but leave income taxes, potentially increasing taxable income. Early withdrawals could push borrowers into higher tax brackets, reduce eligibility for health insurance premium credits, and create unexpected tax liabilities. A Home Equity Conversion Mortgage for Purchase (H4P) is available to homebuyers age 62 and older and lets buyers use proceeds from a prior home sale to finance a new property via a reverse mortgage. HECMs for Purchase remain underutilized; traditional HECMs represented 85.5% of originations as of August 2025 while H4Ps comprised about 6.1%. H4P borrowers typically make no monthly mortgage payments but must pay taxes, insurance, maintenance, and live in the home as their primary residence.
Read at www.housingwire.com
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