MarketWatch: Will Reverse Mortgages Grow in Popularity?

Reverse mortgages are poised to become a more mainstream financial product in the coming years, with some industry stakeholders expecting a rise in popularity as consumer attitudes shift, says a recent MarketWatch article

Currently, reverse mortgages aren’t popular among clients of Northbrook, Ill.-based financial advisor Steve O’Hara. That’s due in large part to people’s desire to hold onto their housing equity and a common view of the product as a “loan of last resort.” 

“If you go up to almost anyone and say ‘Would you or your parents use a reverse mortgage,’ the average senior or heir would say ‘That’s not for me, that’s for someone in a crisis situation,’” Colin Cushman, chief executive of Generation Mortgage, told MarketWatch.

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But that may change moving forward—perhaps out of necessity.

“Some homeowners may be forced to reshape their opinions on reverse mortgages,” says the article. “As people live longer due to medical advances, more of them may need to get at their home equity to pay for their medical costs.”

Another factor: Many older Americans have significant wealth in the form of home equity, MarketWatch continues, and low- and middle-income households are especially likely to have their wealth concentrated in their homes.

“It’s a tremendous safety net. People today who would tell you they’d never want to use [a reverse mortgage]; 10 years from now, some will have to use it,” O’Hara said.

While the product could be increasingly used as a retirement safety, some say it could also grow as a strategic retirement planning tool. 

“Over the past year or two, a few articles have been published in the Journal of Financial Planning and other professional publications suggesting that reverse mortgages have a place in a comprehensive approach to personal financial management for retirees,” Peter Bell, CEO of the National Reverse Mortgage Lenders Association, told MarketWatch. “There are a few different approaches advocated by different planners, but essentially they all boil down to strategies to preserve the duration of assets through retirement.”

In 2013, nearly 60,100 reverse mortgages were originated, according to FHA data. “But while retirees may currently know only one person with a reverse mortgage today,” says MarketWatch, “there may come a time when they know 20.” 

Read the full article. 

Written by Alyssa Gerace

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  • According to those who follow population trends, 76 million Baby Boomers were born between 1946 and 1964 and of that number, 72 million survive. Only 18 nations currently have populations greater than 72 million. The populations of England, France, Spain, and Iraq among many others are currently smaller than the number of Baby Boomers living in the US.

    As the last Baby Boomers reach 62 the oldest Baby Boomers will be over 80. So even though Baby Boomers have only marginal propensity over their predecessors to obtain HECMs, their sheer numbers will demand more HECMs than we see being originated today.

    As Mr. Bell correctly points out, the goal of the most sound financial planning strategies incorporating HECMs is with the view of stretching assets deeper into retirement. As the veil of the benefits from the use of HECMs early in retirement is slowly assimilated, greater and earlier use of HECMs in retirement will spur a significant growth of HECM originations over time.

    However, the increase in HECM endorsements over the next 13 years or so will only come in part from a newly found popularity in HECMs but more so from a growing senior population who will still be taking HECMs at a rate somewhat greater than a 2% penetration rate. If it gets to 4% in the early part of the next decade, so much the better but that is doubtful. Currently there are over 39 million seniors over 65 years old. Add another approximately 11 million for those between 62 and 64 (inclusively) and we currently have a population of seniors over 62 of over 50 million.

    Over the next fourteen years the senior population will grow but may only do so by something less than 60% as the older seniors pass away. When it comes to understanding age population demographics it is important to realize that we will not just be seeing the growth in the senior population over 62 growing due to Baby Boomers but we will also be seeing that growth offset to some degree by the deaths of the existing senior population.

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