Despite some industry headwinds, now may be just the right time for financial advisors to recommend reverse mortgages to clients to help fund retirement and lock in home values and claim amounts, says a recent article by the online industry website Financial Planning.
If a reverse mortgage makes sense for a financial planner’s clients, it’s a good idea to look into them soon, and for several reasons, Financial Planning advises.
These reasons include the possibility that the Department of Housing and Urban Development (HUD) could decrease loan limits at the end of 2011 from $625,500 to $417,000. Also, an FHA-insured reverse mortgage is a way to lock in a home’s current value and protect its equity, as housing prices in some parts of the country continue to decline.
And, for pre-retirees who have lost their jobs and are struggling to find work in a weak economy, the loan could be a “financial lifeline,” says the article.
While reverse mortgages are most commonly taken out by low- to middle-income seniors, they’re growing in appeal among other demographics, too, said one certified financial planner, noting a trend of more affluent people using the product as a planning tool to fund long-term care and supplemental life insurance.
“Their investments have taken a big hit, and if they have needs that have to be addressed, they’re looking to their house to fund it,” said Dennis Loxton, regional vice president of the reverse mortgage division of First Century Bank in Gainesville, Ga., in the article.
The exits of big-name lenders such as Wells Fargo and Bank of America also makes the future of the program unclear, it continues, going on to mention several industry lawsuits including deceptive marketing charges and allegations of illegal foreclosure procedures against spouses of deceased borrowers.
“While these headwinds are unlikely to cause the reverse mortgage industry to disappear, in the short run they will probably have a negative impact,” says Financial Planner, going on to predict the possibility of consolidation among bigger players, tighter underwriting standards, and higher fees.
The article also explains how the program works and runs through the pros and cons of reverse mortgages.
Read the full Financial Planning article here.
Written by Alyssa Gerace