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Is There an “Ideal” Client for a Reverse Mortgage? How Getting This Wrong Could Hurt Your Client’s Retirement

Is There an Ideal Client for a Reverse Mortgage?

This is a question that I have often been asked, particularly over the last 5 years.

When I started in the industry nearly 20 years ago, I came across an AARP explainer VHS tape that started with this line: “If you consider yourself house rich, but cash poor, a Reverse Mortgage may be right for you.” In times past, many advisors adopted the same (limited) impression of the type of clients who could benefit from a Reverse Mortgage.

The truth is that this was never indicative of the majority of borrowers. As a matter of fact, 15 years ago AARP discovered that the majority of people who were taking out a Reverse Mortgage had between $50,000 and $100,000 in other assets prior to taking out the loan. Regardless, the House Rich/Cash Poor moniker stuck.

Asking But Not Asking

In chapter 2 of my book, Housing Wealth, I discuss the “Eight Reasons Advisors Are Paying Closer Attention to Reverse Mortgages.” One of those 8 reasons is the because the profile of the average borrower has changed!  Think about this:

  • Have your clients ever asked about refinancing or eliminating their loan payment, so they can reduce their current draw or have extra money to enjoy retirement?
  • Have they ever wanted to annuitize prematurely or cannibalize an asset because of a spending shock?
  • Have clients shown concern about their savings being vulnerable to a market correction, or to erosion that comes with inflation?

The answer to most of these is “Absolutely,” and the descriptions below may feel familiar.  These folks were asking for a solution to their problems, and in many cases that solution (or part of it) can be found in the incorporation of Housing Wealth into their retirement income plan.

Times have changed and the perception that the Reverse Mortgage is only for the house rich, cash poor is waning. Numerous uses of the Reverse Mortgage have been developed—strategies that favor those who have healthy home equity, a healthy portfolio, and work closely with a trusted advisor.

Although the “house rich, cash poor” borrower can still benefit from a Reverse Mortgage, they are just one type of borrower.

So Who Is the Ideal Borrower? The Five Borrower Types

Let’s take a closer look at the five different types of retirement-age homeowners who are benefiting from the new Reverse Mortgage:



The Constrained:

Those who are focused on survival. These are clients in dire circumstances, with little to no other savings or assets and limited monthly income.  (House rich, cash poor.)

The Concerned:

Those who are focused on rescuing retirement income. The client’s retirement plan has encountered something unexpected. Perhaps one spouse had planned to work longer but couldn’t, or an unexpected health crisis drains the savings faster than expected.

I once had a client whose wife was a very successful real estate agent. Though she was sixty-two, her business was booming, and she had no intent on retiring until one day when she was suddenly unable to speak. A neurological phenomenon had taken her voice with no medical remedy available. She decided to wait it out and see what would happen, but in the interim, the couple’s retirement plan needed a rescue.

Did you answer “yes” to this question: Have your clients ever wanted to annuitize prematurely or cannibalize an asset because of a spending shock?  If you did, you have had a Concerned Client.

The Cautious:

Those who are focused on increasing contingency. In this case, a client has a workable retirement plan but not enough reserved for the unexpected or undesirable: prolonged poor markets, higher-than-expected inflation, unwise portfolio draws during bear markets, etc.

If you answered “yes” to this question, Have clients shown concern about their savings being vulnerable to a market correction, or to erosion that comes with inflation, you’ve experienced a Cautious Client.  Read this blog post for a housing wealth strategy that could benefit them.

 

The Comfortable:

Those who are focused on improving retirement plans. These clients have a workable (or nearly workable) retirement plan but desire enhancement: increased retirement spending, the creation of a hedge for market corrections, establishment of legacy gifting with asset protection, and life insurance.

Remember this question: Have your clients ever asked about refinancing or eliminating their loan payment, so they can reduce their current draw or have extra money to enjoy retirement? It may sound familiar.  Many Comfortable Clients have worked with their advisors to build a solid retirement income plan, but often wish they had additional funds upon entering retirement.

The Carefree:

These are the Bill Gates, the Warren Buffets of the world. They are not going to run out of money—ever.

Why would a retired CEO who had $5 million in investments and was living in a $4 million home be inquiring about a reverse mortgage? This client of mine had nearly $2 million in housing debt with a monthly mortgage payment more than $20,000.

The house rich, cash poor perception is as outdated as the VHS tape I first saw it on. The newly restructured reverse mortgage is a dynamic tool that can be used WITH other retirement income strategies to bring about outcomes that might have otherwise been impossible. It can be incorporated to create new planning conversations from the clients you may consider carefree to the ones you know are not.

To learn more and download your free chapter, go to www.housingwealthbook.com

Don Graves, RICP®

Don Graves, RICP®

President and Chief Conversation Starter at HECM Advisors Group/Institute
Don Graves, RICP® is a Retirement Income Certified Professional and one of the Nation’s Leading Educators on the Emerging Role of Reverse Mortgages in Retirement Income Planning. He is president and founder of the HECM Institute for Housing Wealth Studies and an adjunct professor of Retirement Income at The American College of Financial Services. He has helped tens of thousands of Advisors as well as more than 3,000 personal clients since the year 2000
Don Graves, RICP®
Don Graves, RICP®

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