Certified Financial Planner, Dan Moisand has been working with retirees for over 25 years and has seen many ups and downs in the reverse mortgage product, but still isn’t jumping on board, he explains in a recent article published in Financial Advisor Magazine.
Moisand compares the reverse mortgage product with the variable universal life product (VUL) that was popular in the early days of his career. He explains that it was presented as the ‘swiss army knife of financial products’ and just couldn’t get behind that kind of blanket statement, because everything depends on a client’s individual situation.
This is how he feels about reverse mortgages as well. Though he does point out that since the Federal Housing Administration (FHA) has made changes to the rules and regulations of the product, it does have more of a chance than in previous years of being useful for the right homeowner.
But the overarching theme of why he is skeptical of the reverse mortgage product revolves around lack of knowledge. Whether that be the lack of knowledge of potential borrowers or financial advisors themselves.
“Too many people treat reverse mortgages as something for nothing,” he writes in the article. “That’s dead wrong. Reverse mortgage must be paid back. Because servicing payments are not required and the maximum payback is capped, they can look friendly compared to more conventional mortgage products.”
Another issue Moisand sees with reverse mortgages is that clients can sometimes see financial advisors who discuss the smart strategic use of a reverse mortgage product as a creative and innovative thinker, which he says he’s skeptical of, because ethics then come into play.
Investing borrowed money in not, in and of itself, an ethics violation, Moisand admits. Rather, the facts and circumstances determine whether a reasonable strategic choice has been made or if predatory sales are taking place.
“Using a reverse mortgage to preserve an investment portfolio may make good sense, but if the reverse mortgage is not presented as a higher cost debt or the lack of required servicing payments are used to present a reverse mortgage as free or cheaper than other debt, a line may be crossed,” he writes.
Even though Moisand is not extremely fond of the reverse mortgage product, he does explain that in some situations, advisors owe it to their clients to explain the reverse mortgage options, but should be prepared to receive native feedback from some.
Read the full article on Financial Advisor.
Written by Alana Stramowski