For those of you who have been in this business awhile, you’ve probably heard a senior relay the story about how they, or a friend of theirs, took out a reverse mortgage and everything was going along fine until their reverse mortgage term payments stopped.
“How can this be?” they say. “I can’t afford to live in this home with the meager income I have from Social Security!” And then the inevitable statement: “Those reverse mortgages are no good and don’t offer help when you need it the most.”
When I attend senior seminars or gatherings, either as a speaker or attendee, I usually hear this story from someone who knows someone who took out a reverse mortgage. This friend can no longer afford to live in his home and has little or no equity left because of the reverse mortgage and the current market conditions. After some discussion, I typically find out that the senior was receiving term reverse mortgage payments and totally forgot that the payments would stop after a certain number of months or years. The senior grows comfortable with this extra income and does not give a second thought to the fact that someday the payment stream will end.
There was probably a very good reason for setting up this person’s reverse mortgage to distribute term rather than tenure payments, which last for as long as the senior lives in his home. Maybe they had to pay for a caregiver and did not have the funds available, or perhaps they needed a certain amount of money to meet monthly expenses. These are all very good reasons to put a term payment in place, and the ability to offer various payment options depending on a borrower’s needs is a fantastic feature of the HECM.
Yes, we all know that the terms are disclosed to our senior customers several times during the origination process, and many times you get the knowing nod from your senior borrower that this is a term payment and therefore the income stream will end after a certain amount of time. But sometimes this concept does not hit home.
I often hear a multitude of reasons from a borrower as to why a term payment will work:
I will be selling my home before then.
I have an investment that is about to come through and then I won’t need the monthly income any longer.
I’m selling another property I own and I will pay off the reverse loan with the proceeds.
I am getting a renter or my son/daughter is moving back in soon and they will help with monthly expenses.
When these best-laid plans don’t materialize, the payment setup is not given a second thought because the income from the reverse is still there.
As reverse mortgage professionals, we need to listen closely to our clients’ needs and discuss with them carefully the various possibilities offered by a reverse mortgage. It would be easy to be the order taker and follow through with the type of mortgage that a customer thinks is best, but it’s important to stop and assess if they are thinking long term. What if something does not happen as they plan? That brief moment of pause and reflection may help a senior avoid a costly mistake many years down the road. Suggesting a tenure payment and making plans to supplement it with investment income or retiring debit (so there are no monthly payments) could go a long way in helping a senior. You will know best once you start working with your client if there are sources of income or ways to save money that would make a tenure payment a better solution.
A percentage of your clients will only benefit from a term payment and so that is what you will end up writing, but keep your options open and look for other solutions that your client might not have considered. Share your experience and education with your senior clients; you do reverse mortgages every day, but your client will do only one. One more happy, lifelong reverse mortgage customer should be our goal.