Texas Tech On Reverse Mortgage Financial Planning Crusade

With a forthcoming study proving the financial planning benefits of using a reverse mortgage, researchers at Texas Tech have been working to inform the financial planning community of the loans’ benefits to senior retirees. The study comes on the heels of a separate analysis reported in February by the Journal of Financial Planning.

While the Texas Tech research and analysis is slightly different, and has a focus on the Home Equity Conversion Mortgage Saver product, the message is the same: Reverse mortgages are a more-than viable financial planning tool for retirement.

So far, the campaign has garnered interest among the financial planning community, says Dr. John Salter, a lead researcher on the study. Salter, who told RMD his team’s research has been submitted for publication, has presented the findings to two groups of financial planners in advance of publication and has plans to present it to several more in the coming weeks.

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“I’ve given two talks so far to financial planners, with many more coming up,” Salter says. “I’ve found the biggest help is educating people on the product. Then they understand it’s a good option. This is opening people to different [reverse mortgage] uses.”

The education may be a small upfront hurdle, but the community is coming around, Salter says.

“Starting off with cost—it’s what everybody thinks about,” Salter says. “But it’s tax-free income. [When they learn this] everyone’s on board.”

Especially in light of the current economy and dire financial situations many people face, the time is right to learn, he says.

“Right now, planners have clients with their HELOC frozen or canceled. It turns out to be a big issue. But the reverse mortgage credit line actually grows over time. It’s all those little details no one takes the time to sit and look at.”

The Texas Tech research takes a different approach from the most recent analysis conducted by Barry Sacks and Stephen Sacks by using projected investment outcomes rather than historic returns, as in the Sacks & Sacks research. Using 1,000 simulations, the Texas Tech team rebalanced the portfolio to account for market volatility, from which many current retirees have suffered.

The outcome, however, is still positive, indicating that drawing down on a reverse mortgage line of credit when investment returns are down is beneficial to the long term financial planning.

Ultimately, Salter says, it’s a matter of introducing financial planners to a new tool—a task that is already under way. Once they understand how it works, there isn’t a whole lot of selling necessary, he says.

“The box was pretty well defined for a long time. This is just different. It’s like hearing about a new kind of technology. People learn about it and say, ‘Hey, that’s kind of cool.'”

Next on Salter’s List: The HECM for Purchase product.

“We’re about to do a rudimentary analysis,” he says. “There are so many options in terms of planning.”

Written by Elizabeth Ecker