How To Never Make A House Payment Again After Age 62
How To Never Make A House Payment Again After Age 62
How to Upgrade When You Downsize, Aging In Place With Greater Financial Stability
Most financial service professionals fail to incorporate home equity planning or reverse mortgages into their estate planning. This might be a big mistake.
Jamie Hopkins, a professor at the America College of Financial Services, notes that financial service professionals are here to serve their clients and make their lives better. Advisers who are acting in the best interest of their clients need to consider including home equity and thus reverse mortgages into their practices when doing retirement income planning.
Your home may be your largest asset in your financial plan.
For many folks, their home is their largest asset. From a cash flow perspective, an existing mortgage payment or a coordinated reverse mortgage could be the largest cash flow item for a retiree.
Financial advisers should answer two questions: 1) Is it reasonable to ignore the client’s largest asset when developing a financial plan? 2) Is it reasonable to ignore a government-insured solution? The answer should be: No. It is not reasonable to ignore the home as an asset, and it is not reasonable to ignore a reverse mortgage for retirement-age homeowners.
If a financial adviser ignores home equity and the benefits of a reverse mortgage, the adviser may be placing the client in a worse situation than if there had been an error of omission. The failure to plan or the failure to consider an option can also lead to liability.
What is a reverse mortgage?
A reverse mortgage is a loan that allows you, an age 62 or better homeowner, to access your cash equity to be used however you want. You can receive it in many ways: one lump sum, in monthly payments, or in a line of credit for withdrawals as needed. You do not have to pay the loan back until you sell the home, the surviving borrower passes, or you have not occupied the home for more than 12 months. The total amount you owe depends on the total amount of all cash advances and the interest on the cash advances. However, the amount will never be more than the value of the home at the time the loan is repaid. You will never owe more than the house is worth and you retain the title to your home.
When you apply for a reverse mortgage you may be subject to credit or income qualifications because you will still need to keep up with payments related to property taxes and relevant home owner association dues. A reverse mortgage will not affect Social Security or Medicare benefits and is not subject to federal income taxes. It is a FHA insured program so you will need to complete reverse mortgage counseling.
Will home equity planning follow the path of long-term care planning?
Not too long ago, many financial advisers said they would not sell long-term care insurance (due to many policies offering weak inflation protection and high premiums) so they stopped including long-term care planning as part of a comprehensive plan. So what happened? Attorneys sued and questioned how financial advisers could ignore the major risk (of not having sufficient funds available for long-term care). So financial planners incorporated long-term care planning into their practices even if it did not always lead to the purchase of long-term care insurance.
Financial planners may also take this path with home equity planning and reverse mortgages. However, you could make the argument that home equity planning is more fundamental to financial planning than long-term care planning.
Financial planners should consider reverse mortgages as part of a retirement plan
While financial planners may not recommend reverse mortgages to all their clients, they should be well informed about the product. They should also be familiar with the research findings of experts like Dr. Wade Pfau of the American College of Financial Services and Barry Sacks, J.D., Ph.D., of HECM Advisory Group that illustrate the benefits of including a reverse mortgage into a retirement income plan. Even the Financial Industry Regulatory Authority, Inc. (FINRA) states that reverse mortgages are a valuable planning tool and should be considered by advisers.
Today’s financial adviser operates in an environment with increasing liability, as well as more fiduciary responsibilities that emphasize planning over sales. Today’s financial advisers cannot ignore a client’s tax situation, investment allocation or risk tolerance level when providing advice. However, many financial advisers continue to ignore the potential benefits of home equity and reverse mortgages. This may be due to compensation models, a lack of education, and specific compliance policies. However, a financial adviser committed to doing what is best for his client, will explore and embrace home equity and reverse mortgages.
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