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Not All Seniors Are Good Candidates for Reverse Mortgages
A growing trend in the reverse mortgage field involves more and more seniors taking out reverse mortgages as a means of delaying their acceptance of Social Security benefits. But, the Consumer Financial Protection Bureau is warning mortgage companies and their senior customers about the risks of using reverse mortgages in this fashion.
If you deal in reverse mortgages, then here is what you need to know about the risks concerning this popular type of mortgage for older homeowners.
The Dangers of Using a Reverse Mortgage to Delay Social Security Payments
Many people retire at age 62 (the minimum age for benefits) whether or not they have retirement savings. But, when one retires at this age, they still have to wait a few more years before they start receiving their full benefits from Social Security. Until that time, they have to make do and one way that some are bridging that gap in income is by getting reverse mortgages.
In fact, there are many lenders out there that market their reverse mortgages specifically for this reason and they could be inadvertently hurting the future of their clients’ lives. This is especially the case in situations where the costs of the reverse mortgage are higher than the lifetime benefit of the senior’s Social Security benefits.
According to the CFPB, by the time a retiree hits the age of 69, the average cost of their reverse mortgage loan is about $2,300 higher than the additional cumulative lifetime amount they are expected to gain from an increased Social Security benefit.
Another risk is a change in the market which either causes a home’s value to drop or home appreciation to slow. In this type of situation, the homeowner won’t be able to sell their home or refinance their loan because the balance of their reverse mortgage loan is likely to be higher than the home’s equity.
Additional Risks Associated With Reverse Mortgages
If you sell reverse mortgages, you should discuss the pros and cons with your senior clients so they know ahead of time what they can expect from this type of transaction. This type of loan can be a very positive thing for the right client, but it’s important to acknowledge that not all seniors can benefit from this type of mortgage.
For instance, seniors who are in poor health might want to look at other options instead of a reverse mortgage because should they pass away, their surviving spouse and children could be negatively impacted. An example of this would be if the senior had a family member living with them. If the individual was not included in the loan, then they may be forced to move out of the home by the bank.
Alternative Options for Seniors
If you feel that a reverse mortgage isn’t the right solution for a senior client, it doesn’t mean that you can’t still earn their business. In fact, by being upfront with the client, they will be more likely to use your company’s services.
There are three viable alternative options that can help a senior reach his or her financial goals besides a reverse mortgage. These include taking out a new mortgage and thus getting a lump-sum payment through the cash-out refinance, getting a tax-deductible home-equity loan, or getting a home-equity line of credit. When you present the various options available, you will increase the chance that your client will get the ideal solution for their unique needs.
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