ThinkAdvisor Weighs Reverse Mortgage Potential, Pitfalls

Reverse mortgages can be a viable solution to helping an aging homeowner fund their longevity during retirement, and as such, it is important for financial planners to know the benefits and potential pitfalls these loans carry, according to a recent article from Think Advisor.

The article poses the question of whether a reverse mortgage fits into a retired client’s planning strategy, breaking down basic information about Home Equity Conversion Mortgages (HECMs), eligibility requirements, loan terms, payment options and Financial Assessment guidelines, before delving into the “upside potential” and then the “potential pitfalls.”

A reverse mortgage can be a useful solution for a client who is planning to remain in their home until death, the article notes, helping the individual eliminate any existing mortgage payments, while also allowing them to avoid drawing on retirement assets like Social Security in order to receive a higher future benefit. The article also describes how a reverse mortgage line of credit can help clients regain value and weather a down market.

Potential reverse mortgage pitfalls, according to Think Advisor, are fees that can be higher than those required of other options, the article notes, as origination fees, mortgage insurance premiums—an upfront fee of about 0.5% of home value—and an annual fee expressed as a percentage of the loan value will apply.

“Clients who are considering a reverse mortgage must be apprised of all of the facts in order to ensure that the strategy is right for them—because their home is at stake, it is more important than ever that the advisor provide competent and comprehensive advice,” writes Think Advisor.

Read the Think Advisor article. 

Written by Jason Oliva

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