Seven Reverse Mortgage Concerns
In early 2017, after speaking at a large conference for advisors and following up with a routine email, I received this surprising response:
“{Company Name} is an independent, registered investment advisory firm managing nest eggs for over 400 client families. We have done extensive research on the reverse mortgage business and do not feel it is a prudent strategy for any of our clients.”
Though initially stunned by his written candor, I recognized his response as one of the seven concerns I’ve heard advisors express over the years. See if you can spot his below.
Reverse mortgages are:
- Too Controversial: “They have a lot of bad press, and it seems like when they do come up, the response is always negative … I don’t want my clients to look at me sideways if I mention them.”
- Too Complicated: “They have too many bells, whistles, and hidden trap doors. I don’t know anyone who understands them.”
- Too Expensive: “I hear the costs are astronomical.”
- Equity Strippers: “They don’t leave any money to my clients’ heirs.”
- Not Something My Clients Have Ever Asked About: “I have never had a client actually ask me about them as something they would need.”
- Not for My Clients: “Even if they did ask, my clients would never have a need for one.”
- Products That Should Only Be Used a Last Resort: “I would only tell my clients to do one if they ran out of money and it was the last possible option.”
Do these concerns sound familiar? My guess is that many of you reading this article once held or currently hold one or more of those opinions. Honestly, each of those concerns have an element of truth to them, though most are outdated, exaggerated, or misunderstood.
The one good outcome concerning the advisor’s email is that it caused me to rethink how I approach the topic. Now, I begin by asking advisors to answer three simple questions, and my only request is that you answer honestly.
Three Simple Questions
1. What percentage of your clients who are at or near retirement do you think would have a need for a reverse mortgage?
2. What percentage of those clients would say they’re 100 percent certain they’ll have a great retirement? Now, here is the most important question to answer with complete honesty:
3. If there were a proven resource that would allow those clients to increase cash flow, reduce retirement risks, preserve assets, improve liquidity, and add new dollars back into savings . . . what percentage of those clients would want you to tell them about it?
Did you answer 100 percent to the last question? Of course, you did. Most advisors do; truthfully, what advisor wouldn’t?
Herein lies the disconnect. Advisors tend to answer that maybe 10–15 percent of their clients “might” have the need for a reverse mortgage and that only 10–15 percent of their clients are 100 percent certain they will have a great retirement.
They then acknowledge that 100 percent of those clients would want their advisor to tell them what a reverse mortgage does! That’s right; those three things mentioned are the core building blocks of how the newly restructured reverse mortgage works. Surprise!
Increasing Cash Flow: Would any of your clients say they have NO interest in learning how to have more accessible cash for their monthly enjoyment and expenses in retirement?
Reducing Risks: Is there a safety net, backup plan, or insurance policy for everything that can go sideways in retirement? If there were, then certainly all your clients would want you to tell them about it.
Preserving Assets: There are all types of eroding factors that can eat away at retirement savings. Some are out of our clients’ control, but not all. Possessing this indispensable resource would be a game-changer for your clients, and not telling your clients about it would be indefensible!
Improving Liquidity: “Time is filled with swift transition,” said the old song we crooned growing up. The what-ifs will happen. What client would NOT want to learn of a way to have readily accessible access to tax-free dollars when unexpected events occur?
Adding New Dollars to Savings: Do I even need to discuss this one? With the current savings rate and longevity crisis, I think it’s reasonable to say that all your clients would want to know how they could accomplish this.
Why the Huge Gap?
Why is there a difference between the typical perception of the reverse mortgage and the reality of what one accomplishes? I think I know the answer.
In 1997, I was president of Habitat for Humanity in Philadelphia. The board of directors provided me with my first cell phone. A cell phone! You couldn’t tell me that I wasn’t a first-round NFL draft choice, it was such a big deal. However, the phone only did two things: made and received phone calls, period!
Fast-forward twenty years to my son’s “smart” phone. During the time he’s had it, I have seen many texts sent, angry birds die, videos launch, snapchats come and go, and Facebook opinions posted, but the one thing I never saw my son do (until recently) was make or receive a phone call! It would hardly be fair to compare the two “phones.”
See the disconnect? When some advisors think of the reverse mortgage, they envision the equivalent of my 1997 cell phone. It was useful and timely for the era but limited in scope when compared with modern resources. However, today’s newly re-structured Home Equity Conversion Mortgage (HECM) is much more like my son’s smartphone. It has a myriad of applications, or “apps,” that can help advisors create new and powerful retirement outcomes.
Practice Management: The Power of Illustration
Gary & Carol Davis | Cherry Hill, New Jersey
The Davis family had a sustainable retirement spending plan, but after speaking with their advisor, they became aware of their need for a contingency plan for health and long-term care expenses.
- Ages 65/71
- $400,000 in Retirement Savings
- $350,000 Home Value
- $100,000 Mortgage Balance (Monthly Payment: $1,000)
After exploring several options, their advisor suggested that incorporating their home equity into the plan may be beneficial. In anticipating this, the advisor requested a Customized Housing Wealth Illustration to have for the meeting.
Illustration vs. Calculation
The Illustration (see below) showed the client not only the cash flow that could be created by eliminating their monthly loan payment, but also the $650,000 created in a growing, tax-free reserve that could be generated if they made a voluntary monthly payment on the reverse mortgage. The purpose of the Illustration was NOT to provide a benefit amount (you can find that anywhere online). The purpose was to create a visual story board that allows conversations to emerge about the power and versatility of Housing Wealth.
Take a Test Drive:
Not sure yet, take it for a test drive. If you are an advisor, allow me to prepare an Illustration for one of your clients (real or hypothetical).
It takes only about 90 seconds; go to www.HousingWealthPro.com
Ready to Learn How to Grow Your Practice with Housing Wealth Applications?
Click here to learn more about the Housing Wealth Certificate Course and to get a complimentary preview.
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
Latest posts by Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA® (see all)
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Categories: Advisors, Financial, Financial Planning
Tags: Changes to Reverse Mortgages, Financial Planning, HECM Basics, Misconceptions, Reverse Mortgages, Reverse Mortgages and Retirement Planning
