Financial Planning: The Changing Profile of Reverse Mortgage Borrowers

The reverse mortgage, once known as a product for those in desperate financial need, is appealing to a new consumer, according to a recent article by Financial Planning. 

“With its reduced fees and the new financial assessment, the [home equity conversion mortgage] HECM is now appealing to finance-savvy homeowners looking for additional tools to utilize in retirement planning,” Toby Dattolo, president of Heritage Mortgage Banking in Morristown, N.J., tells Financial Planning.

The Financial Assessment is also playing a role in the changing profile of reverse mortgage borrowers. 

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“Reverse mortgages may become more of a retirement income tool and less of a life jacket for house-rich but cash-poor seniors,” Financial Planning notes.

But the product is not for everyone. 

“I analyzed whether the clients interested in buying a dream home should use a reverse mortgage or a traditional mortgage or existing assets for the purchase,” says Clarissa Hobson, a financial planner with Carnick & Kubik, personal financial advisors in Colorado Springs, Colo. “I concluded that a 30-year traditional loan would be the most advantageous to their long-term net worth, so they went in that direction.” 

Read the article here.

Written by Cassandra Dowell

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  • Where adequate cash is not a significant issue, a thirty year mortgage will always be the best answer for seniors whenever the financial planner views a HECM as strictly a negatively amortizing mortgage. Unfortunately far too many planners do not view the HECM as another fully amortizing mortgage by the election of the borrower because our loan documents do not include actual amortization. Instead what we describe as an amortization schedule is in fact a projection of accrued interest, MIP, the balance due, the appreciation on the home and the equity on the home over time.

    The best HECM alternative to a 30 year mortgage will generally be an adjustable rate HECM since it allows the borrower to borrow monies used to pay down the loan if it ever becomes necessary and once sufficiently paid down it can be held open for future needed draws. Also if payments are not timely, there is no penalty and no credit ding. Further the available line of credit grows.

    Also the size of payments can be controlled by the borrower rather than the lender. Payments can be accelerated at will rather through agreement with the lender. A missed debt service payment is never a problem with a HECM. Like a 30 year mortgage, property taxes, homeowner’s insurance, and home maintenance requirements must be met.

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