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Nasdaq: Reverse mortgage could be an option for seniors aiming to buy a new home

While purchases still make up only a fraction of reverse mortgage industry volume, they can fill a need according to a column at Nasdaq

Home Equity Conversion Mortgages (HECMs) for Purchase (H4P) are not a significant driver of overall reverse mortgage industry activity, but for a senior looking for a way to finance the purchase of a new home feasibly then the product may be worthy of exploration. This is according to a column from GoBankingRates published by Nasdaq.

“People entering into retirement may consider purchasing a home once they do so,” the column reads. “However, most retirees are on a fixed income in their retirement years and must be careful when considering using their savings for a major purchase.”

Enlisting a mortgage broker to offer perspective on the option, there is potential for an H4P product to help fill a gap regarding the desire or need to buy a home on a fixed income, the column reads.

“This type of loan allows you to cash out equity in your home without having to make monthly payments,” said Boyd Rudy, an associate broker at Dwellings Michigan.

That’s not to say that it would be ideal for all potential senior borrowers, however, since the upfront cost could be the source of sticker shock for some.

“The downside of a reverse mortgage is it can be expensive,” the column reads. “Fees and interest rates can add up, potentially eating into your home equity. There are also strict rules surrounding reverse mortgages to be aware of. Retirees may consider looking into finding lenders with expertise in these mortgages before pursuing the option further.”

According to data compiled by Reverse Market Insight (RMI), total share of H4P volume across the entire reverse mortgage industry made up only 4.2% of all endorsements in 2021. Still, RMD has encountered perspectives from several reverse mortgage originators across the country that swear by the H4P product as an instrument to generate business, and at least one major lender has vowed to support efforts to significantly increase H4P volume.

“Most of our loan originators have built referral partnerships over decades in some cases,” said Fairway Independent Mortgage Corp.’s Dan Hultquist to RMD in March. “And so, they know the local real estate agents. A lot of the business in our industry is generated through call centers, but call centers don’t have the ability to build relationships with local real estate professionals. Some of them have boots on the ground [and] feet on the street. But for the most part, we already have those relationships, so it’s natural for us.”

Read the Nasdaq column.