Forbes: Four Ways to Use Home Equity in Retirement, Including Reverse Mortgage

It can be a very tough experience for a senior to take a hard look at their retirement plan, and realize that they may not have enough financial resources to make ends meet for the duration of their post-working lives. This is why for some, it may be practical to look at the equity that a homeowner has built up over time, learning about ways that equity could be employed to play a role in retirement financing.

There is more than one way to tap home equity in retirement, but four particular methods are the subject of a new column in Forbes designed for a retiree assessing all of the options that might be available.

Although not presented as the first option in the article itself, a reverse mortgage is one of the four primary methods the authors tackle, describing the reverse mortgage product category with context the industry may find generally helpful.

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“A survey by Fannie Mae found that less than half of seniors said they were familiar with reverse mortgages,” the article says. “But even if you do know how they work, you may be circumspect. In the same survey, 20% of participants said they were concerned about ‘getting scammed’ if they took out a reverse mortgage.”

Many people may be averse to reverse mortgages because of stories in the press or in the larger media that have related difficult situations that seniors have found themselves in, but the article aims to make clear that modern reverse mortgages look a bit different than they used to.

“It’s a different market today,” the article reads. “The vast majority of reverse mortgages are insured by the Federal Housing Administration (FHA). And over the past few years, the FHA has imposed rules that better safeguard borrowers for its reverse mortgages, which it calls Home Equity Conversion Mortgages (HECMs). Recently, retirement experts in financial planning and academia have gotten on board with reverse mortgages and HECMs, publishing research that shows how using a reverse mortgage can be a smart way to generate more retirement income.”

That’s not to say that reverse mortgages are simplistic financial tools, since as the article points out, they most certainly are not. It describes upfront costs as “potentially steep” and describes the existence of specific guidelines governing how long someone can live outside of the loan while conforming to the loan’s terms. It even goes as far as to recommend additional professional assistance in understanding the potential impact of the option on a person’s situation.

“You may want to consider hiring a financial planner who is familiar with the HECM program to help you figure out if it’s a good fit,” the column reads. “Many planners will take on a project for a fixed or hourly fee.”

The other three recommendations in terms of home equity tapping options are a home equity loan (or “second mortgage”); a home equity line of credit (HELOC); or simply downsizing the home.

Read the article at Forbes.

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  • Great points particularly encouraging consumers to seek advice of a financial advisors who has experience with reverse mortgages in retirement planning strategies. Unfortunately, not all FA’s are versed or even willing to open up to the idea of a reverse mortgage.
    I would also add that consumers should seek out an experienced and highly skilled reverse mortgage loan officer, like a Certified Reverse Mortgage Professional, to obtain the best combination of knowledge and guidance.

    – Rick R. Rodriguez

  • Like Rick said, great points in this article brought up in seeking out financial planners, but as Rick also said, ” Seek out finial planners that have experience with reverse mortgages in retirement planning strategies”.

    What we can do as an industry is increase our calling on Financial Planners, educate them with diplomacy, get them to become partners with us. This way, we get to the FA’s first, cultivate them and get their clients as our borrowers!

    In the article it points out that less than then half of senior Homeowners are familiar with reverse mortgages, that is sad! Does this mean as an industry we are not getting the word out the right way?

    Sure, companies are advertising, but it is up to us to reach out to seniors. I realize it is hard with the Covid restrains we have on us to put on direct educational workshops, but in some cases it can be done with distancing and limited seating.

    This used to work great in reaching numbers of seniors at one time, it also enabled us to get business at the same time as well!

    There are ways of holding virtual educational workshops, many can be arranges with your local municipalities as a public service to their communities.

    We have the means to educate and that is what is needed more than ever today for our seniors! Yes, it is much harder in today’s environment to do these things, but who said things are easy today??

    John A. Smaldone
    http://www.hanover-financial.com

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