Some people incorrectly believe that Reverse Mortgages only apply to people with no other options. While it’s true that in the past they were used as a loan of last resort by seniors unable to make ends meet, they have undergone substantial policy changes over the years. The Reverse Mortgage is now used as a valuable tool to pay off mortgages, preserve home equity and combat market down-turn. This is not for everyone but for those 62 and older living on a limited income, it can change their lives. Through recent government improvements it gives you, as a Financial Advisor, another option to help clients who may not quality for traditional funding but need increased cash flow. The new federal regulations make it safer, more secure and more affordable than ever.
Find out for yourself how the Reverse Mortgage can benefit your clients and increase your business.
What Is The Reverse Mortgage Stabilization Act of 2013?
The Reverse Mortgage Stabilization Act of 2013 prevents Reverse Mortgage borrowers from using too much equity too soon, helping to secure their financial position. It also protects spouses who are too young to be co-borrowers on the loan by ensuring they can remain in the house after the older spouse passes.
With these guidelines in place, Reverse Mortgages have taken on a new shape. They have revitalized the dialogue about how this financial tool can help seniors realize their retirement goals.
Why Is The Reverse Mortgage An Essential Tool For Financial Advisors?
How many times have you sat down with your clients and recognized they are underfunded for retirement? In order to bolster finances in retirement, Financial Advisors should consider their clients home equity as part of their long term retirement plan when reviewing their portfolio and retirement income distribution. In many cases, the home is the single largest asset in a client’s portfolio. The Reverse Mortgage is a safe option to pay off a current mortgage, provide a line of credit for unexpected expenses in the future and to protect portfolio integrity. In addition, it will stretch their retirement dollars and compensate for longevity risks. Best of all, the proceeds from the Reverse Mortgage are tax-free.
7 Ways a Financial Advisor Can Use The Reverse Mortgage As A Financial Planning Tool:
1. Delay Social Security and pension payouts.
Some seniors may need Social Security and pensions as soon as they are available. However, the tax-free cash from the Reverse Mortgage may make your clients financially sound enough to wait on receiving those payouts, thus increasing future liquidity.
2. Postpone drawing down retirement assets, giving those assets time to grow.
This idea follows the same formula as Social Security and pension payouts discussed in #1. The longer your clients can delay receiving benefits, the longer those resources have to grow. With a Reverse Mortgage, you may be able to afford to wait pulling those benefits.
3. Increase your cash flow by eliminating monthly mortgage payments.
In recent years, too many fixed income retires still have a significant amount of time left on their existing mortgages. Unfortunately, many are forced to pull from their portfolio to make monthly payments. The Reverse Mortgage can pay off the existing mortgage and eliminate that monthly principal and interest payment. This leaves your clients with more money each month and reduces the need to pull from their portfolios to service the debts.
4. Access to a low-cost, growing line-of-credit.
One Reverse Mortgage option is to keep the proceeds in a growing line-of-credit. This means that the line-of-credit available to your clients years from now may be larger. It also can’t be called like a traditional line-of-credit and does not require requalification.
5. Protect portfolio performance in a down-market.
In a down-market, your clients’ portfolios and cash flow may not be at peak performance. If they need to pull money for monthly payments or living expenses, it gives them less money to grow in the future when the market corrects. With a Reverse Mortgage, the tax-free funds can be drawn to make up for any loss income until the market rebounds.
6. Access annuity-style payments using the home equity.
The Reverse Mortgage gives your clients the option to receive funds in tax-free, annuity-style payments. Your clients have the option to choose what the payment is or let the Reverse Mortgage do so. They can also change options or stop payments whenever they want. This is perfect for clients who prefer to plan their income as a steady flow.
7. Replace cash reserves.
A Reverse Mortgage gives your clients access to additional money available at any time, while also protecting them from spending down their portfolios.
Example Of Recent Client We Helped:
A retired couple living on a fixed income has both a first and second mortgage with over 20 years left to pay. They were self-employed and only had Social Security as a steady source of income. However, they had a portfolio over $1.5 million and had to pull from this to service the mortgage debts. We used the Reverse Mortgage to pay off their existing mortgages and they established a line-of-credit. Now, they can preserve their portfolio and it can grow. If an emergency occurs, they have the money in the Reverse Mortgage line-of-credit to use rather than deplete their portfolio.