Reverse mortgages are something investment advisors typically steer clear of. Most advisors view the loans as too pricey and, due to the constant attention surrounding defaults, too risky as well. Investment advisors are more apt to seek out other alternatives for clients who run into financial problems during retirement. However, due to a recent article released in the April 2012 edition of Investment Advisor magazine, advisors may need to begin reconsidering the reverse mortgage for seniors.
Why More Advisors Are Recommending Reverse Mortgage for Seniors
The main problem baby boomers are currently facing is a lack of readiness for retirement. Many seniors are entering retirement with limited liquid assets, leaving their home equity as their largest asset. Unless seniors are willing to give up their homes for more affordable properties, a reverse mortgage is the only way to tap into home equity without acquiring another monthly loan payment.
With the Federal Housing Administration (FHA) backing Home Equity Conversion Mortgages (HECMs), investment advisors can feel confident recommending these loans to their clients. In fact, since reverse mortgage proceeds are tax-free, seniors might want to use their home equity before cashing in their retirement assets. Also, with newer loan products like the HECM Saver, high fees are a thing of the past.
Reverse Mortgage for Seniors: What Are the Risks
According to Investment Advisor, the largest risk factor surrounding the reverse mortgage is the health of FHA. Should the agency go bankrupt and need a bailout, the future of the HECM program would be in danger. According to the FHA commissioner, the agency is facing “severe economic conditions.” Fortunately, the commissioner also claims that FHA’s programs are “actuarially sound,” and that there is no need to worry.
It is also worth mentioning that the HECM program is one of the strongest. This program is currently profitable and should remain so in the future. According to Michael Kitces, director of research at the Pinnacle Advisory Group in Columbia, Maryland, reverse mortgages can actually be safer than other mortgage loans. These loans are nonrecourse and backed by FHA, which means that they can never be underwater. With so many positive features, more investment advisors will surely begin utilizing these loans in the future.
For more information on this unique loan product, contact one of our loan specialists at (877) 267-0274 for more information.