How many times have you heard from the media or attorneys, financial planners and accountants that a reverse mortgage should be a last resort for seniors? Too many times, I bet! We as an industry of professionals need to start educating our seniors and those who advise them that this notion is simply wrong. The reverse mortgage is not just for those in dire need; it can be an extraordinary tool for seniors interested in alternative financial options to secure their retirement.Smart programs like the HECM Saver bring to the table an option that can fit a particular need for certain seniors. The Saver has its own selling points. For one, the closing costs are much less than the standard reverse mortgage. Yes, the interest rate is higher and the amount the senior receives is less, but the Saver still fits a particular niche. It works perfectly in a situation where a senior is looking to use the loan for a specific purpose, like to buy a boat or vacation home. The Saver also works well when one has a lot of home equity or if the home is owned free and clear. Certainly, these are not last-resort situations.
I worked with a senior the other day whose home was valued at $396,000 with a first lien of $67,000. This senior had a very decent retirement income and very little debt. But he had health problems that could become disabling sometime in the future.
His problem is not a last-resort situation—quite the contrary! He was not desperate; he simply wanted to take precautions. After reviewing his need and objective, I advised him to get a standard adjustable-rate mortgage (ARM). He intends to put the money in a line of credit so he can see a substantial growth rate from month to month, creating a nice security cushion.
Originators often look for loans that fit squarely into the last-resort category. They tend to cater to seniors who have a tremendous amount of debt and are in dire need of relief. These individuals turn to a reverse mortgage as a last resort. But there is another category of seniors who have a more secure financial status and who are looking for alternative methods to supplement their income or savings. These seniors can benefit greatly from the ARM product but aren’t helped much by the more profitable fixed-rate product. Even though an originator can make more on a fixed-rate loan, they need to concentrate on what product is best for the senior, not what is best for them.
The reverse mortgage can be a smart option for seniors who simply want to tap into the tax-free home equity they have worked for years to build. It can offer qualifying seniors hard-earned financial freedom in their retirement years. As professionals in this industry, it’s important that we educate the public about the potential benefits of a reverse mortgage and the different programs that can match their needs.