Loan origination is all about knowing your clients and finding the best possible solution for them. The loan agent needs to do a thorough assessment of the clients’ current financial situation and then match their needs with the most suitable product. As always, the more complicated a product is, the more education is required for the consumer to fully understand the pros and cons. A reverse mortgage is a rather complicated financial tool, and that is why only certain agents have the ability to find the right client for these types of loans.

Despite the large benefit provided by the loan to older individuals, only 2.1 percent of eligible homeowners had HECMs in 2011. Bequest motives, house price risk, interest and insurance costs are some of the reasons for the astoundingly low take-up rate.

An important question for loan originators is how to reach this untapped market. Let’s review some facts that will lead us to the right answer. Research shows older homeowners are less likely to borrow as they age because it is either too costly or they don’t meet the income requirements. As a result, many retirees end up selling their homes in order to overcome large expense shocks during their later years in life. In such a constrained environment, a product designed to give senior borrowers access to their home equity without requiring a monthly payment can be the perfect answer.

In order to be able to present the benefits of reverse mortgages to tentative clients, one should highlight the four major ways that a reverse mortgage differs from conventional mortgages and how it is designed to help retirees. I’ve put together a list of points to help loan agents better communicate the benefits of this product to potential clients.

1.) As the name implies, a reverse mortgage works in the opposite way of a conventional mortgage loan. Explain to homeowners that this means they can tap into the home equity they have accumulated, and instead of submitting a monthly payment, they can receive a monthly payment. Because the loan amount is based on how much equity a homeowner has in their home, these loans are designed for older homeowners who have accrued substantial equity during their lifetimes.

2.) Explain that government-insured HECM loans have different requirements than conventional mortgage loans, such as a minimum age of 62 and a repayment of the loan based on home value. These requirements have been set because many older homeowners do not qualify for conventional mortgages due to income-based requirements. HECM loans have no such requirement.

3.) Point out that HECM loans are non-recourse loans, meaning borrowers are insured against substantial drops in house prices. This feature of the loan alleviates one of the main concerns expressed by older homeowners who fear that utilizing their home equity through a reverse mortgage could mean they might lose their homes.

4.) Finally, and most importantly, household characteristics such as wealth, income and health are very important determinant factors for an older homeowner’s decision  about whether to borrow. Having the option of a reverse mortgage will help them solve the so-called “retirement saving puzzle” and enable them to utilize their equity for expenditure shocks when necessary.

Overall, the reverse mortgage could be a great solution for the aging population who may benefit from the features and flexibilities of this type of loan. Originators should present a clear roadmap to make a case for reverse mortgages to their eligible candidates.