Any reverse mortgage professional in the business today is well aware of the lingering reputational issues plaguing the industry’s distribution to new clients, but one new editorial piece published by MarketWatch breaks the mold by instead focusing on ways in which the product could benefit those at or near retirement.
“Most people think of reverse mortgages, as they’re commonly called, as the last-gasp attempt to stay in your house when you’ve run out of money in retirement,” writes MarketWatch Investing Columnist Beth Pinsker. “But even before they get into financial trouble, some seniors are using these loans as a financial-planning tool, so they can leverage the equity in their homes on their own terms.”
Proactivity about a client’s rights and responsibilities is key to engaging in any financial transaction and is no different for reverse mortgages, she writes, but overlooking the product because of preconceived notions or bad information may cut a senior out of a potentially useful tool, she says. Among two of the most common misconceptions about reverse mortgages is that a borrower gives up the title to their home, and that they will inevitably lose money on a reverse mortgage, she writes.
“You’re not giving up the house,” says reverse mortgage expert Wade Pfau, who spoke with Pinsker for the column. “If you sell and pay off the loan balance, everything left over is yours. If the loan value exceeds the sale price, you’re not on the hook to pay back more.”
That’s not to say that there is no risk involved, Pinsker writes.
“There are drawbacks. One is high fees,” she writes. “Closing costs are higher than with a home equity line of credit or a cash-out refinance, plus there are ongoing charges while you keep the loan active. Your interest rate might also be higher than conventional loans. Another possible risk is that even without having to make a mortgage payment, your financial situation could still be dire. If you can’t keep up with your taxes and insurance, you could go into foreclosure.”
Still, for seniors looking to make ends meet and to add cash flow in retirement, a reverse mortgage is a potentially viable option for the right client who meets all the necessary qualifications, she writes.
“It’s a smart planning tool if you happen to get your hands on some equity, knowing you don’t have to pay it back until you’re ready to sell your home,” says reverse mortgage borrower Paul Dandrea, who entered into a reverse mortgage after making a plan with his financial advisor.
Read the column at MarketWatch.
