Financial Planners should consider recommending reverse mortgages for elderly clients and for the parents of middle-aged clients, writes Financial Planning in a recent article, noting that new rule changes position the product to better protect borrowers.
“[Reverse mortgages] can be a very useful tool for seniors who plan to stay in the home for a long time,” Jim Kinney, who heads Financial Pathway Advisors in Bridgewater, N.J., tells Financial Planning.
However, Kinney cautions, reverse mortgages are not a good fit for those who do not have the resources to maintain their home.
As a consequence, applicants will soon undergo a financial assessment in order to qualify for a loan; lenders will be required to make sure a borrower can pay for insurance, taxes, and home maintenance, based on the applicant’s assets and cash flow. [Editor’s note: The article incorrectly states that the financial assessment is currently implemented.]
Other notable changes that took effect recently include married couples can now get a home equity conversion mortgage (HECM) even if one spouse is younger than 62, however, a married applicant often can borrow less than had been the case.
“For seniors who are short on liquid funds for an emergency,” Kinney says. “HECM line of credit can be a lifesaver.”
Kinney’s father opened a HECM line of credit just a few months before Hurricane Sandy hit. After his father’s home was hit, he was able to use the HECM line to pay contractors when payments from insurance companies and government agencies were delayed.
“Thanks to the reverse mortgage, my father was able to get his house back into living condition much faster than many of his neighbors,” he says.
Read the full story here.
Written by Cassandra Dowell