5 Ways Reverse Mortgages Can Serve as Retirement Planning Tool

In today’s world, Americans face a looming retirement crisis — one that has been well-documented over the past several years and which has created a new purpose for the reverse mortgage.

Gone are the days when reverse mortgages were considered a loan of last resort. Now, the product is gaining steam among financial planners as a retirement tool that can hedge against future costs and provide much-needed income during borrowers’ post-career days.

By using a reverse mortgage to tap into home equity and fund retirement expenses, homeowners can effectively defend against the imminent retirement crisis, research shows.

“A lot of times people have not accumulated [savings] in a disciplined way, but at the same time the value of their homes has appreciated dramatically,” said Dennis Channer, principal at Cornerstone Investment Advisors, LLC, during a recent webinar hosted by Reverse Mortgage Funding (RMF) and the Financial Experts Network. “A great deal of their wealth is tied up in that value. [Home equity] becomes another available resource in the long range forecast of being successful [in retirement].”

And that’s just what Wednesday’s webinar, “Standby Reverse Mortgages: A Portfolio Longevity Strategy,” was focused on teaching. Its purpose was to educate financial advisors on how a home equity conversion mortgage (HECM) could be used as a portfolio protection strategy.

“The ideas are endless on the different angles we can take on using the [reverse mortgage],” said Dr. John Salter, an associate professor of financial planning at Texas Tech University, who has educated financial planners on reverse mortgages for years. “There’s nothing wrong with the product.”

While the ways to use a reverse mortgage may be endless, Salter explained five strategies, in particular, for financial planners to keep in mind when clients are approaching retirement.

1. Use Reverse Mortgage Instead of HELOC

There are benefits borrowers can get from using a reverse mortgage that they can’t get from using a HELOC, Salter said. Among those benefits are line of credit growth, no monthly principle or interest payment, and the loan is not cancelable as long as requirements are met.

“If you’re looking for flexibility in repaying [the loan], you get that in a reverse mortgage; you don’t get that in a HELOC,” he added.

A HECM is also non-recourse, meaning the borrower or their estate will never owe more than the value of the home upon sale or death.

The only downside of a reverse mortgage is the age requirement, as there is no restriction on age when using a HELOC.

see more: http://reversemortgagedaily.com/2015/05/28/5-ways-reverse-mortgages-can-serve-as-retirement-planning-tool/