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Surging Need for Retirement Cash Increases Advisor Interest in Reverse Mortgages

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By George A. Downey

Ongoing low interest rates and fixed income yields are increasingly inadequate to cover spiking living costs, leading retirees and financial advisors to search for alternative sources for reliable cash.

Photo credit: istock.com/ William Potter

The quest for stable cash flow and liquidity in retirement is increasingly challenged by low bond yields and stock market volatility. To solve the dilemma, financial planning professionals are seeking alternative sources of cash that can reliably increase and extend cash flow and financial security.

One obvious, and often overlooked, source is housing wealth (home equity), the largest single asset of most households. Short of selling, the home has traditionally been considered an illiquid asset, not a viable financial planning tool. That is no longer true.

Reverse Mortgages – A Unique and Versatile Financial Planning Tool

Advisors and retirees are realizing reverse mortgage makes possible borrowing with exclusive features including: (1) no obligation to make payments, (2) no maturity date as long as one borrower lives in the home, (3) receive income tax-free distributions, (4) use funds for any purpose, (5) establish a guaranteed growing line of credit that can’t be cancelled, (6) no personal liability, (7) no obligation to repay more than the property value at time of repayment, and more.

Savvy financial advisors are learning how reverse mortgage works and for whom it is suitable. Understanding the unique combination of features and versatility provides advisors and clients the ability to monetize home equity.  In so doing, they can unlock housing wealth to increase financial resources that will improve and extend retirement security – without selling the home.

Reverse Mortgage Common Uses

  • Pay off mortgage and other debt
  • Establish scheduled distributions to supplement cash needs
  • Create a guaranteed growing line of credit for future needs
  • Pay health and long-term care costs
  • Reduce retirement risks
    • Sequence of return risk
    • Health care and longevity risk
    • Fear of running out of money
  • Fund contributions to family, church, and charities
  • Purchase second home, RV, travel

Enhanced Planning Potential

Integrating housing wealth into the financial planning process can be a game changer. The elimination of mandatory debt payments plus access to additional income tax-free funding provide homeowners and planners with more planning versatility and greater capacity.

Borrower Obligations – It’s A Mortgage – Just Different

Funding and loan terms cannot be frozen or cancelled as long as the loan remains in good standing.  Borrower obligations are limited to:

  1. Keeping real estate taxes, liability insurance, and property charges current.
  2. Providing basic home maintenance
  3. Continuing to live in the property as the primary residence

Good For Some – Not for All

Reverse mortgages are unique programs designed to improve and extend retirement security primarily for those who want to remain at home to age-in-place. Because they are different, they require comprehensive education to ensure understanding and suitability for near- and longer-term considerations.

Every situation is different.  A reverse mortgage may, or may not, be a good fit based on individual qualifications, circumstances, needs, and preferences.

To learn more, consultation with a Certified Reverse Mortgage Professional (CRMP) is recommended.  CRMPs are certified, experienced, and exam-tested professionals pledged to strict observance of the  Code of Ethics & Professional Responsibility of the National Reverse Mortgage Lenders Association, Washington DC.  More information on reverse mortgages and a list of CRMPs is available on NRMLAs consumer website www.reversemortgage.org.

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George Downey (NMLS 10239), is a Certified Reverse Mortgage Professional (CRMP) and the founder of Harbor Mortgage Solutions, Inc., Braintree, MA, a mortgage broker licensed in Massachusetts (MB 2846) and Rhode Island (20041821LB), NMLS #2846.  Questions and comments are welcome.  Mr. Downey can be reached at (781) 843-5553, or email: GDowney@HarborMortgage.com