A reverse mortgage “evolution” is making the loans a better retirement prospect than they once were for financial advisors, writes industry publication Bank Investment Consultant in a column this week.
“If you think that reverse mortgages are only for cash-strapped retirees without any other financial options, think again,” the column begins, addressing its advisor-readers. “The features of reverse mortgage loans have been evolving over the years and a growing body of research suggests that these loans can help older adults manage a dependable stream on income during their retirement years.”
The article recaps recent reverse mortgage changes implemented by the Department of Housing and Urban Development to help prevent borrowers from overextending themselves, including a restriction on upfront draws for fixed rate reverse mortgages.
It also makes note of recent research at Texas Tech University that incorporates reverse mortgages into retirement planning strategy as a standby line of credit to hedge against bear market times.
“In years of the inevitable and periodic steep market declines, one takes payouts out of the line of credit to fill retirement income needs instead of taking it out of one’s investment portfolio,” Bank Investment Consultant writes. “This allows the investments to weather the market declines and have time to recover without the compounded stress of withdrawals. The borrower might use the line of credit for income for six months or a year until the markets have recovered sufficiently.”
The article also covers reverse mortgage benefits such as the line of credit growth feature, lack of credit and income requirements, and current low rate environment as considerations for planners.
Written by Elizabeth Ecker