Reverse Mortgages: Product of Last Resort? Not for Financial Advisers

NewImage.jpgInvestment News is reporting that financial advisers are not using reverse mortgages as the viable retirement income vehicles they can be.

Often referred to as a product of last resort, financial advisers usually write off the loans as too expensive and confusing for their clients.

“But because they allow people 62 and older to stay in their homes and convert home equity into tax-free income, reverse mortgages probably should be an adviser’s first resort. In fact, there are many times when a reverse mortgage can be the best way to stretch a retirement portfolio.”

Before everyone jumps all over the reporter for using the term income, there is some great info.  An analysis provided by Generation Mortgage was used in the article.

Consider, for example, a 75-year-old who is living in a mortgage-free home valued at $350,000 and has a $200,000 retirement portfolio.

Assuming a desired after-tax annual income of $27,500, a 6.5% annual retirement account investment return and a 2% annual home value appreciation, turning to a reverse mortgage first would generate total income of $590,000 and fund retirement for 19 years. Applying the same criteria to a last-resort strategy, which uses a reverse mortgage only after the retirement portfolio is spent, would fund retirement for 16 years with a total income of $500,000.

The $90,000 difference is created primarily by giving the higher-performing retirement portfolio more time to benefit from market appreciation. A third option, drawing down the retirement account, then selling the home but having to finance other living arrangements, would fund retirement for 16 years with a total income of $475,000.

The HECM Saver gets a nice mention, but the article states it has yet to gain much traction and is emblematic of the highly charged nature of reverse-mortgage decisions.

“This is a financial decision to be sure, but it’s also an emotional decision because a lot of people are emotionally tied to a home they’ve lived in for 40 or 50 years,” said Harry Gordon, a branch manager at iReverse Home Loans, a subsidiary of Hopkins Federal Savings Bank.

Check out the article at the link below.

Reverse mortgages should be first resort for advisers

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