Reverse mortgage originators have seen it all when it comes to common reverse mortgage uses. In fact, the National Reverse Mortgage Lenders Association lists 25 ways to use a Home Equity Conversion Mortgage on its consumer-facing website including paying off an existing mortgage, remodeling a home to accommodate aging limitations and maintaining a line of credit that grows for health emergencies.
But including a reverse mortgage in financial plans today can be even more complex as financial planners have come around to their uses, and borrowers are becoming more savvy in how they are using HECMs to curb potential shortfalls elsewhere in their retirement plans. Being able to show scenarios over time to the borrower can be a major positive in the sales process, reverse experts say, and it can prove some solutions to very common problems faced by many households.
In presenting ways in which origination platform ReverseVision can help model prospective scenarios for loan originators and borrowers, the company’s Director of Learning and Development Dan Hultquist detailed several interesting borrower scenarios—and their solutions—with the help Steve Resch, VP of Retirement Strategies for Finance of America Reverse, who also has led a financial planning firm.
By modeling assumptions, Hultquist said during a presentation Wednesday at ReverseVision’s annual UserCon conference in San Diego, loan originators can show borrowers what their financial picture will look like down the road—including what happens when they make payments toward the reverse mortgage loan, opt for a line of credit, or anticipate the home will depreciate over time.
“The most popular feature of the modeling tool is showing what happens when you make payments,” Hultquist said. “For someone still in the workforce, show them making payments. It gives them future security.”
For one couple that Resch advised in the past, making payments was exactly what the couple wanted to do. Both younger than 65, the couple intended to remain working and then draw down from the loan proceeds on an annual basis. By showing the line of credit growth picture relative to cash flow, the couple saw that taking the reverse mortgage line of credit as soon as possible and making payments would enable them to meet their retirement goals.
In another scenario, a couple that Resch advised had a substantial stock portfolio—but selling the portfolio meant facing capital gains tax. Intending to leave the investment portfolio to their children, who would not face such capital gains after the couple passed on, but also wanting to do a remodel on their home in the meantime, they opted to take out a reverse mortgage to achieve those short term goals and protect their investment holdings.
Resch and Hultquist also discussed some of the common misperceptions about reverse mortgages and how modeling can help combat them. Once faced with an adult child of prospective borrowers who insisted the home was in a market that would face depreciation over time, Hultquist showed a depreciating home scenario can actually warrant a reverse mortgage even sooner than an appreciating home.
“If you have a client who says the home will depreciate, model it. That’s’a reason to do the reverse mortgage,” he said. “Don’t wait. The credit line growth over time will counter depreciation.”
Written by Elizabeth Ecker