Special Information for Advisors: Attorneys, Tax and Financial Advisors, Fiduciaries
- A note to Trusted Advisors
- A reverse mortgage is not for everyone. My goal is to collaborate with trusted advisors to help determine if a reverse mortgage meets the needs of your client. I can accomplish this by providing detailed loan scenarios for you (with your client’s permission) and personal consultation to help reach a decision that is in the best interest of our mutual client. I believe in honest and ethical communication with all clients and their advisors regarding the advantages and disadvantages of a reverse mortgage. Please contact me at your earliest convenience.
- Advantages
- Reverse mortgages provide many advantages for the senior borrower. This loan has tremendous versatility as a retirement funding tool and I have another 25 ways to use the HECM. Please contact me for that list. Here is a short list of just a few:
- Proceeds received from a reverse mortgage do not affect Social Security or Medicare
- Frees up an illiquid asset (home equity)
- Can allow senior to purchase a new home with no mortgage payment
- Can provide source of income to cover monthly expenses while borrower allows their investments to recover and remain under management
- Maintain a line of credit (that grows) for health emergencies and surprises
- Pays off existing mortgage, in many cases freeing up thousands in monthly payments or preventing foreclosure. No more mortgage payments.
- Allows the senior to maintain their independence while living in their own home
- Provides money for in-home health care or medical expenses
- Disadvantages
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- Spends part of the equity that would be passed on to the estate or children
- Increasing loan balance, decreased equity over time
- May affect eligibility for needs-based programs such as Medicaid
- For those itemizing tax deductions, a reverse mortgage can eliminate the deduction for home interest if no interest is paid out of pocket. However if the homeowner pays the upfront fees and the accruing interest, the homeowner deduction may be available to them in the year the interest is paid
- Closing costs and insurance can be expensive depending on the program the borrower chooses. The upront FHA mortgage insurance premium(UMIP) might be the most expensive item. However this is not in all cases ; these fees have been adjusted. This means ideally, the borrowers should plan on living in the home for several years to reduce overall costs
- The Ideal Client
- While there is no stereotypical reverse mortgage client, there are common characteristics you can look for in a prospective reverse mortgage holder. This loan is no longer the loan of last resort. It is gaining the interest of vast array of seniors 62 and older in large part due to the Great Recession. Some ideas below:
- Cash poor, house rich
- Wants to improve lifestyle and has no concern about spending equity that would go to estate.
- Has taxable income they wish to postpone, while accessing from reverse mortgage proceeds not subject to personal income taxation
- Understands that their home is a retirement asset in which they live and wishes to leverage their home to improve current lifestyle. Open to financial planning options using home equity.
- Wants to purchase a new primary residence and does not quaify for a traditional mortgage. Or this same client can save retirement funds undermanagement and use a reverse mortgage to purchase a primary residence.
