With the cost of living on the rise, many older homeowners are looking for financial solutions that allow them to age in place. HousingWire recently spoke with Christian Mills, head of Financial Advisor Relations at Reverse Mortgage Funding, about the ways a reverse mortgage can create a stable cash flow for homeowners in the midst of a volatile housing market.
HousingWire: As interest rates rise and borrowing becomes more expensive, how can offering reverse mortgages help lenders provide clients with a stable cash flow in an otherwise volatile market?
Christian Mills: Even in the face of market volatility or high inflation, there are many ways lenders can help clients improve their financial stability and secure their wealth in retirement by offering reverse mortgages:
- Fund retirement with income-tax-free* funds — one of the most cost-effective, alternative sources of funds for retirees
- Utilize a reverse mortgage to refinance existing mortgage debt, consolidate high-interest credit cards, or pay for home renovations and large purchases
- Create an emergency fund for unexpected medical expenses or in-home services/long-term care
- Sustain cash flow while delaying Social Security benefits by utilizing monthly tenure payments as an alternative to annuities
- Maintain an investment portfolio while potentially growing their nest egg†
- Create a potentially greater legacy of wealth for heirs by leaving investments intact
HW: How can a reverse mortgage allow older Americans to take advantage of their existing equity without selling at a loss?
CM: Firstly, reverse mortgages, whether government-insured or proprietary, are non-recourse loans. This means that the homeowner (or their heirs) won’t owe more than the home is worth when the loan is repaid.
Also, an independent appraisal during the loan process locks in the property’s market value at the time the reverse mortgage loan is funded. This can serve the borrower in two ways: it protects against a market decline, and it allows the loan to be refinanced when market conditions (such as home appreciation, interest rates, and/or change in spousal status) warrant.
HW: Some borrowers are under the impression that reverse mortgages are a last resort. What can lenders do to dispel this common misconception with their clients?
CW: This is a common misconception that has plagued the industry for years. Fortunately, reverse mortgages have come a long way over the last decade and are no longer considered a loan of last resort. In fact, many financial researchers and scholars have identified it as a strategic tool that should be considered part of a holistic financial strategy for retirement. Take a look at some of the most recent press – The New York Times published an in-depth article in April 2022: “Reverse Mortgages Are No Longer Just for Homeowners Short on Cash.”
The article quotes multiple financial scholars who cite the numerous ways homeowners can use a reverse mortgage proactively. And I think it’s important for lenders to frame the product that way with borrowers – as a proactive tool designed specifically for older homeowners and one that can help them retire with more financial freedom and peace of mind. And now, with the advent and continued improvement of proprietary reverse mortgages, there are more innovative products available to borrowers aged 55 and older, making it easier for lenders to offer clients customized solutions.
HW: How does Reverse Mortgage Funding help lending professionals educate themselves and their clients on the benefits of reverse mortgages in our current housing market?
CW: At Reverse Mortgage Funding, education has always been a number-one priority. We know that this product is not for everyone – it is not a one-size-fits-all solution for retirees. That’s why we do everything we can to help lenders—first, understand the product complexities and second, its application across a myriad of unique borrower scenarios—before we approach the value-add of the product for their businesses.
We provide lenders with best-in-class training (including live and on-demand opportunities) and comprehensive educational materials on the federally insured Home Equity Conversion Mortgage (HECM) and our proprietary Equity Elite suite of products before engaging with borrowers.
We also offer a dedicated support team and credit help desk to address specific questions throughout the life of each loan. Furthermore, we provide our partners with user-friendly technology to streamline their work and expedite loans and do-it-yourself marketing collateral that they use to market to prospective borrowers effectively.
Of course, we want lenders to see the value of reverse mortgages for their businesses and how it can help propel them forward – especially in the face of market instability and rising interest rates. But we also strive to provide thorough product education and arm them with the knowledge and tools they need to help more older Americans find financial stability in retirement.
Our partnerships with lenders also serve as an invaluable lifeline to help dispel popular reverse mortgage misconceptions amongst borrowers and further the industry as a whole.
To learn more about RMF and reverse mortgages visit reversefacts.com/HW
*Not tax advice. Consult a tax professional.
†As with any mortgage, the borrower must meet their loan obligations: keeping current with property taxes, homeowners insurance, and maintenance.
