In last month’s blog I discussed an article from the New York Times that explained how “the time is coming for reverse mortgages”.
While there seems to be an ever increasing flow of articles in the news media about the reverse mortgage program, today I want to discuss the reaction
from the financial community—Financial advisors and planners.
“A reverse mortgage is a loan of last resort.” This is the mantra that most financial professionals have preached over the last twenty-five years.
But while the reverse mortgage industry has faced its share of challenges in terms of public perception, for the first time — perhaps ever —
financial advisers and planners may be taking a lasting turn in favor of this product.
I believe 2012 marked the turning point on this issue when Ph.D., and practicing tax attorney Barry Sacks, and Ph.D. professor of economics, Stephen Sacks
published their 20+ page study “Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income”.
The study compared completely exhausting other assets prior to doing a reverse mortgage as well as doing the reverse mort-gage before tapping other investments,
to creating a plan to use a reverse mortgage along with their other assets.
The study found that people can extend the life of their retirement assets by using a reverse mortgage in conjunction with other assets as part of their
spend-down strategy.
Since this study, it seems that I have seen a lot of articles in financial publications touting the benefits of reverse mortgages. Some are still skeptical,
but I think they are coming around.
Here are some example from just the last couple of weeks:
Bankrate – Use a Reverse Mortgage to Buy a Home. This article discusses the benefits of using a reverse mortgage to buy a home and quotes industry professional
Rob Cooper of Reverse Mortgage Fund-ing, “This is not just a mort-gage product. It’s a financial, cash-flow tool for retirees.”
PlanAdvisor – Reverse Mortgages can Provide Critical Retirement Income.
“A reverse mortgage makes sense for someone looking to leverage home equity for income in retirement,” said Steve Sass, program director at the Center
for Retirement Research at Boston College, in the article.
“Your home is typically your largest expense and asset. So if you need more income, a reverse mort-gage is the place to look.”
Bloomberg News – Reverse Mortgages: Take the Longevity View. “It’s a reversal in reverse mortgages. An that may mean a boon for boomers. Why the sudden
respect?
“A combination of new research that makes a compelling case for reverse mortgages as a viable planning tool when used responsibly, and a fall 2013 overhaul
of the government pro-gram that insures more than 90 percent of the mortgages.”
Huffington Post – When Even Wealthy Home-owners are Using a Re-verse Mortgage, the Question is: Why Aren’t You? While Huffington Post is not necessarily
a financial site, the writer of this article is a real estate reporter in Las Vegas.
This article quotes Barry Sacks, one of the authors of the study that I discussed at the earlier.
“The point of how to use it is the most important thing,” Sacks says. “If it’s used as a last resort after all of the other assets are exhausted during
retirement, that’s the conventional wisdom. And it turns out to be wrong. The conventional wisdom for a long time has said if you have your home equity,
keep it in reserve. If you need it when you’ve exhausted all of the other money, then you have it working for you.”
“What is wrong with that thinking,” Sacks says, “ is it doesn’t take into account the volatility of the securities portfolio of the 401(k) account or the
IRA. With securities portfolios so volatile and going up and down over the years, drawing from them when it’s down is a mistake,” Sacks says. “If the
poorer returns occur in the early years of retirement, then portfolio is likely to be exhausted if it’s drawn upon continuously,”
These are just a few examples that I would be happy to discuss with you or your financial advisor in more detail.
