The ability of a higher net worth client to strategically employ a reverse mortgage loan is a concept gaining steam in the United States, but can also benefit higher net worth clients in countries beyond our borders. This is according to Andrew Cairns, national wealth management lead at HomeEquity Bank based in Toronto, Ontario.
Speaking with Canadian financial publication Wealth Professional, Cairns described the situation at his own company as one seeing more wealthy clients engage with the reverse mortgage product category.
“Surprising to many, a very fast-growing area of our own bank’s wealth focused reverse mortgage business is amongst the high-net-worth retirees,” Cairns told Wealth Professional. “Clients’ preference selecting reverse mortgages has nothing to do with financial need, but everything to do with finding tax-efficient cash flow alternatives and not paying the tax man too early.”
Two reasons that the reverse mortgage prospect is attractive in that segment is the payment structure and the tax implications, Cairns explains.
“[A reverse] mortgage does not have the obligation of monthly payments and concurrently allows clients to access their home equity without tax impact or otherwise selling off appreciating investment portfolios,” he says.
Loan payment deferral combined with a client’s access to tax-free loan proceeds makes for an enticing prospect for portfolio-minded higher net worth clients, Cairns explains to the publication.
“Drawing from situations where the bank has partnered with advisors, Cairns told WP that many are discovering that financial plans made 15-20 years ago are obsolete as retired clients are living longer, with living expenses increasing beyond original estimates,” writes Wealth Professional’s James Burton. “Critically, most retirees don’t want to expose remaining investment portfolios to increasing risk to enhance returns to fill the gap.”
With over 80% of Canadian seniors owning a home, many seniors across that country find themselves sitting on an asset that is appreciating at a rate of between 2-4% annually, and tapping the equity built up in that home (depending on its location) can help a higher net worth client avoid withdrawals from their investments, Burton writes.
“This allows the client to continue to live in their home, but also access and enjoy the gains built into their property at the time it’s most needed,” Cairn explains.
HomeEquity Bank is the leading reverse mortgage lender in Canada. It notably launched a new reverse mortgage product this past fall, and has been making waves across the global reverse mortgage industry particularly due to its advertising. It forged a partnership earlier this year with a former fraudster-turned-security consultant Frank Abagnale to help seniors spot when they may be the target of a scam.
Read the article at Wealth Professional.