Although seniors are often resistant to deploying their financial assets in later life as opposed to letting a will dictate disbursement after death, Longbridge Financial CEO Chris Mayer says a reverse mortgage can help seniors deploy those resources when they can see the potential impact.
“A reason why people don’t get reverse mortgages is because they’d rather keep the wealth [rather than] actually use it,” he told HW Media CEO Clayton Collins in a recent episode of HousingWire’s Housing News podcast. HW Media is the parent company of Reverse Mortgage Daily.
Mayer said that the product’s ability to unlock home equity allows the reverse mortgage industry to serve an important purpose in the larger retirement ecosystem, particularly as housing costs in retirement can be unsustainably high for people who pay into traditional mortgages.
Mayer was recently announced as a speaker at HW Annual taking place October 10-12 in Austin, Texas.
Bequest assets, deploying wealth in later life
Many people avoid reverse mortgages because they feel their home needs to be left as a bequest asset to an heir. In a reverse mortgage, however, resolving the loan can often result in the transfer of ownership.
Mayer’s grandparents, for example, were able to put their wealth toward worthy causes while alive, showing how deploying wealth while living can be more of a reward than waiting for a legal will after death, he told Collins.
“Research suggests people want to give money to the next generation,” he said, noting that his grandparents wanted to donate to their alma mater and sponsor lectures.
“Instead of having that in their will…they got to participate in it and share that with their grandkids, ” he said.
Mayer said his grandparents shared that experience with him by inviting him to accompany them to the university lectures they sponsored.
“Doing something while you’re alive is incredibly valuable, and is a really rewarding way to think about things,” he said. “So if the goal is to help your kids and grandkids, if you’re going to help your kids, [you can] help them buy a home when they’re younger instead of giving them a bequest when they’re in their fifties.”
Helping a grandchild leave college without debt and letting them thank their benefactor directly is an added reward, he said.
The retirement equation
Asked about what led Mayer to take a leading role in a reverse mortgage lender, he pointed to his background in academia and ongoing development about the state of retirement in the U.S.
Since more people have been using their home equity to create additional cash flow pre-retirement in the form of traditional and cash-out refinances, people are entering retirement with more mortgage debt than previous generations, he explained.
“Today, more than 50% of people in their sixties have mortgage payments,” he said.
Seniors who bring a forward mortgage into retirement also bring the disadvantages of those sizable payments with them, which are pronounced for the many seniors on fixed incomes.
“If you look at a study, for example, from the Joint Center [for Housing Studies] at Harvard, for people who are bringing a mortgage into retirement, they look almost like renters in terms of the share of those people who are burdened by housing payments,” he said.
Nearly a third of people with a mortgage in retirement are spending more than half of their income in retirement on housing, he added, noting that the cumulative effect of carrying a forward mortgage payment into retirement can be a huge burden.
A forward mortgage can be eliminated by exchanging it with a reverse mortgage, freeing up cash flow for medications and other necessary expenses, he noted.
Mayer cited another study that claimed seniors spend 25% more money on pharmaceuticals the month following their final mortgage payment, impacting how they deploy their financial resources in later life.
“A lot of people’s wealth is tied up in their home,” he said, noting that retirees may want to consider using it to assist family members and other endeavors that matter to them.