“Top executives and related professionals in the mortgage industry are encouraging friends and family members to obtain Reverse Mortgages. In many cases this is happening even when a homeowner has no immediate need for one. Could there be significant non-traditional uses for Reverse Mortgages that create an advantage for more than just the desperate and needy?”
– Understanding Reverse
The quote above is how I chose to begin my book. This is because the general public still considers Home Equity Conversion to be an act of desperation, not one of financial prudence. When celebrity spokespeople and a small percentage of mortgage professionals are the only ones who understand the financial planning advantages of a reverse mortgage, then we find ourselves with a knowledge gap and an industry perception problem.
The National Reverse Mortgage Lenders Association (NRMLA) and researchers within the Certified Financial Planner community have been trying to change this perception. Yet, in meeting with financial planners, I still get the same puzzled response – why would you want to get one when you are not desperate or needy? I then hand them a copy of my book.
I decided to ask other NRMLA Certified Reverse Mortgage Professionals (CRMP) how they would structure their reverse mortgages.
“I would definitely take a HECM for the purpose of LOC (line-of-credit) growth. I would pay the closing costs upfront and carry a minimal balance so as to make this an ‘investment’ in the LOC growth for future use.”
“My current residence is not where I want to spend the rest of my life. When I retire, I will sell it and use a ‘HECM for purchase’ to buy my new residence. This will provide a sizable contribution toward the sales price of a home where I will spend the rest of my life. Any cash left from the sale will be reinvested for additional retirement income.”
“I’d take a HECM for the LOC, but I expect to have a mortgage balance at 62, so the reverse mortgage would pay that off, but I would continue making payments into the HECM LOC to ensure that money is there when I need it.”
“I will be signing the paperwork the day after turning 62. I will have a loan balance, but I will make regular payments. This will reduce my balance and boost my LOC as a 2nd source of retirement savings. Starting early will maximize the LOC’s compounded growth.”
They plan on using the ARM product to maximize guaranteed future cash flow that a Reverse Mortgage LOC can provide. This strategy is also enhanced when interest rates go up – the LOC grows even faster.
The strategy of obtaining a HECM early in retirement and converting liquid home equity late in retirement is generally not advertised. The Reverse Mortgage is more than a solution for the desperate. It can give retirees confidence that they will be less likely to run out of money, and it can take pressure off retirement portfolios.
Stay tuned to learn more about how to extend retirement assets beyond what traditional retirement planning can offer.