For Trusted Advisors
Trusted Advisors
And Reverse Mortgages
Both the government backed Home Equity Conversion Mortgage (HECM) and a private jumbo reverse mortgage for higher valued properties can be an excellent tool for high net worth clients to prevent portfolio depletion.
It is a loan that needs to be evaluated based on the client's given scenario.
How I work with advisors
- Detailed loan scenarios, provided with your client's permission
- Evaluated based on your client's given scenario
- Aimed at a decision that is aligned with the interest of all parties
- Upfront about the advantages and disadvantages
The advantages and disadvantages
I am upfront with all my clients about the advantages and disadvantages of a reverse mortgage.
Advantages
- Proceeds received from a reverse mortgage typically do not affect Social Security or Medicare.***
- Provides access to a portion of their home's value without the requirement of monthly mortgage payments. Borrowers must continue to meet ongoing property obligations such as homeowner's insurance and property tax payments.
- Could allow a senior to purchase a new home with no monthly principal and interest mortgage payments.
- Improves a senior's standard of living or allows them to live out their non-working years with fewer financial worries.
- Pays off an existing mortgage, freeing up monthly cash flow that would have been committed to ongoing mortgage payments. With the reverse mortgage, there are no more required principal and interest 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
- Potential foreclosure of the home if the borrower does not meet the ongoing obligations of the loan, such as paying property taxes, homeowner's insurance or other required property charges, and maintaining the property per HUD requirements.
- Uses equity that could be passed on to the estate or children.
- The loan balance increases and the equity will decrease 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.
- There are closing costs and insurance that apply, so borrowers should plan on living in the home for more than a couple of years.
Upfront About
The Pros And Cons
I can provide detailed loan scenarios to you, with your client's permission, to help reach a decision that is aligned with the interest of all parties.
Ongoing obligations for the borrower
A reverse mortgage has no required monthly mortgage payment, but borrowers must continue to meet these obligations.
- Keep property taxes current
- Keep required homeowner's insurance in force
- Keep the home in good repair and maintain it per HUD requirements
- Live in the home as their primary residence
Good to know: Home Equity Conversion Mortgages are the only reverse mortgages insured by FHA.
Who should consider a reverse mortgage?
These are the clients for whom a reverse mortgage may be worth a closer look.
A parent with substantial home equity and a limited or fixed income
Someone who wants to maintain or improve their lifestyle
Someone who prefers to access mortgage loan proceeds instead of other accounts or sources which may be taxable*
Someone who wants to remain in their home and age in place using a reverse mortgage**
*Consult your financial advisor.
**You cannot lose your home under normal circumstances and so long as you pay your property taxes, homeowner's insurance, maintenance costs and otherwise comply with the loan terms.
***It should be noted that any needs-based government benefits could potentially be impacted by a reverse mortgage. Homeowners receiving such benefits should seek qualified professional advice in such circumstances.
Let's Talk About
Your Client's Scenario
Share a scenario, with your client's permission, and I'll provide detailed loan numbers to help reach a decision that is aligned with the interest of all parties.