Though many financial planners have yet to jump on the reverse mortgage bandwagon, there are some out there who finally realize that the product can be a viable tool in retirement planning, when used strategically.
A wealth manager who, until now, viewed reverse mortgages as a last resort has changed his tune and now sees how they can be used strategically in a holistic retirement income plan in certain situations, Pete Woodring, founding partner of San Francisco-based Cypress Partners, wrote in a recent article on Kiplinger.
“When it [a reverse mortgage] was discussed, it was the client who brought it up,” he wrote. “I’d easily dismiss the idea of a reverse mortgage because it was an expensive form of borrowing and posed unnecessary risk when there were other sources of income.”
That is different now after recent changes in policy occurred as well as the shift in the retirement landscape in America, he explained.
The rule changes by the Federal Housing Administration (FHA) lowered borrowing costs as well as the risk to borrowers. Though it is still more expensive to take out a Home Equity Conversion Mortgage (HECM) than it is to take out a forward mortgage, but it is no longer next to impossible to afford for the average senior.
Longevity also played a factor in Woodring changing his tune.
“Considering the risks facing all retirees who rely on their own capital as a source of lifetime income—sequence of returns, longevity, inflation— it would be foolish not to consider one of the largest stores of wealth, their home, as part of their retirement income plan, even if it was never needed,” he wrote.
The article also points out ways in which a reverse mortgage can be used to help specific issues retirees often face, such as using a loan to close the gap in Social Security benefits, converting to a Roth IRA and simply using a HECM as back up to pay for potential costs of long-term care.
“When considered in the context of a holistic retirement income plan, it should be considered with guidance of an independent financial adviser specializing in retirement income planning,” Woodring wrote.
Read the full article on Kiplinger.
Written by Alana Stramowski