Experts Tout Benefits of Reverse Mortgages to Financial Planners

As finances are uncertain for many approaching retirement, reverse mortgages are an ideal shock absorber for the many potential shocks once a senior stops working, financial experts conveyed to an audience of financial planners Wednesday.

Hosted by the American College of Financial Services, “Utilizing Housing Wealth in Retirement” featured Shelley Giordano founder and chair of the Funding Longevity of Task Force, Jamie Hopkins, professor of retirement planning at The American College; and Barbara Stucki, the principal at BRStucki Consulting. Girordano spent a portion of time explaining the benefits of a reverse mortgage in a retirement plan.

From the beginning, Giordano debunked any mindsets that reverse mortgages should only be used when all other strategies were exhausted.

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“If there’s one take away from today’s presentation, it is reverse mortgages are not a strategy of last resort,” she said. “If you’re fond of saying this — and believe me I run into people on a weekly basis who say, ‘Oh, those reverse mortgages are a strategy of last resort,’ — just wash your mouth out with soap. It’s not true.”

In her presentation, Giordano outlined several strategic uses for a HECM, including refinance, HECM for purchase, coordinated withdrawals, the power of the line of credit, and divorce, giving two scenarios when a HECM is an “elegant solution” for parting spouses.

In the first case, the divorcing couple takes a HECM out on the house, and the parting spouse takes 50% of the value to use an H4P and buy a home of similar value.

“Another solution would be for them just to go ahead and sell the house, and then they use the cash as a down payment but leverage that down payment with an H4P,” she said, explaining that each spouse could potentially move into a home of equal value.

Divorce was also one of the common shocks of retirement, along with liquidity shock, inflation shock, housing value shock, health shock, car repair, portfolio shock, hearing aids, and even dental problems, Giordano said.

“This is a big deal with people later in life,” she said. “It’s not covered by Medicare, and it’s integral to people’s sense of wellbeing and their health,” she said.

Rather than waiting to open a reverse mortgage, it needs to be to talked about early in retirement as more seniors are expressing their desires to age in place, she said.

“If your opening recommendation to your client is, ‘You can just downsize,’ that might not be what they want to hear,” Giordano said.

Aside from using a reverse mortgage to absorb shocks, she illustrated other ways to incorporate a HECM into retirement.

“Paying off an existing mortgage, having the cash to have those home renovations to age in place, H4P for a new home to be near the grandchildren,” she said.

Other examples she gave include using a HECM for a social security delay bridge, to leverage investable asset growth potential, as well as the power of the growing line of credit when opened early.

Written by Maggie Callahan

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  • The use of HECMs in divorce is not new. Over a decade ago, when the property settlement was closing, one spouse (age 68) requested cash in exchange for some personal property that had a great deal of significance to the other; however, the spouse (age 66) who wanted the personal property was cash short but was also taking the home free of any liens in her part of the settlement.

    Both former spouses went through so much misery in arriving at a final pre-closing agreement both wanted to settle as fast as possible and thus agree to delay the sale of the personal property until after the property settlement became final. With the approval of the ex-wife’s attorney, the ex-husband’s attorney and I discussed the matter and agreed on a deferred payment mortgage on the home in exchange for the personal property that would occur immediately after the property settlement was final.

    At that point, I took a HECM application from the ex-wife and she got an appointment with a counselor. Within sixty days after completing the app, the buyer received a bill of sale plus a reconveyance of the trust deed ready for recording and the buyer got the cash he desired along with a small increase in his income tax liabilities. Despite the fact that the increased income tax liability could have been avoided by delaying the close of the property settlement, having the settlement over and done with was just too important to all parties, particularly the ex-husband to wait any longer.

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