Financial advisers have long been critical of the reverse mortgage product, but many of the weaknesses they were criticizing have been fixed, explains a recent article from Investment News.
“These are not your father’s reverse mortgages, and advisers should take another look,” the article writes.
Some of the reasons that financial advisers have been critical in the past was because they felt that the product was confusing for themselves as well as the borrower.
The high upfront costs that are involved also play a large role in the less than ideal view advisers have on reverse mortgages. These costs can include: counseling fees, origination fees, appraisal fees, title insurance fees credit report fees and the insurance premium that is required to be paid to the Federal Housing Administration.
Another rule that caused some criticism before the changes were put into place was regarding the non-borrowing spouse rule, or lack there of. Before the rule change that protected non-borrowing spouses, if an older spouse passed away and the younger spouse was under 62, the balance of the reverse mortgage became due, which left many people in a tough situation and sometimes even made them lose their home.
With safeguards such as counseling requirements and newer underwriting policies that are now involved before someone is approved for a reverse mortgage, there is a lower chance of someone getting in over their head with a reverse mortgage.
In a survey of elderly Americans, 81% of respondents cited the desire to stay in their homes until death as a reason for seeking a reverse mortgage and 48% cited financial difficulties, the article writes.
Another option that some financial advisers may not realize is that a borrower is not required to spend the funds they receive in a reverse mortgage. It can be used as a back-up in case some unexpected expenses happen to come up in the future.
Many of the large issues surrounding the reverse mortgage product have been solved, so financial advisers should be looking into the product as a viable option for certain clients. For the right person, it can be an extremely useful financial planning tool.
Read the full article on Investment News
Written by Alana Stramowski