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Reverse Mortgages Revisited

Last fall, we blogged about the HECM (Home Equity Conversion Mortgage), commonly called the “Reverse Mortgage.” Local expert provider Marshall Gallop was our radio show guest that week. He brought us up to date with innovations and examples from the industry. In the world of financial products, the only constant is change.

On our July 1 radio program, we revisited with Marshall to again bring consumers up to date with changes in the Reverse Mortgage industry. My first observation was regarding the new advertising face of the industry, Tom Selleck. Reverse Mortgages have been touted by several famous people over the years, but none seem to me to portray the aura of confidence and honesty Selleck brings to the screen. Whether or not using celebrities is a good idea is a hot topic for debate. In my opinion, the industry got off to a bad start by using actors as spokespeople.

So why did the Reverse Mortgage industry start so poorly? First, the explanation of the product seemed (to me, at least) to target the desperate-for-money-older-folks market. Naturally, the Reverse Mortgage was then thought of as an avenue of last resort. Once a product gets a bad name in the industry, it is difficult to overcome people’s perceptions.

But there were other reasons for the poor acceptance of the HECM. One was the pure cost of the mortgage origination, which was inordinately high. This has changed, but many people are unaware of this fact. That is one reason we like to cover the topic periodically on the radio show.

Another reason is the common misconception that the HECM was just another way the bank could take your house. Again, untrue, but a hard habit to break. In other words, the rollout of the product was pretty much botched by the industry.

Times have changed, and the HECM has flowered into a valuable planning tool, as well as a vehicle for keeping older Americans in the homes that they loved and paid for over long careers. What happened to effect this change?

First, origination costs have come down dramatically. Also, the product offerings in the Reverse Mortgage arena have been improved and varied, including the introduction a few years ago of the HECM-to-Purchase option. As a financial planner, I love the purchase option, as it allows the home buyer to either buy a better house, or pay a lot less out-of-pocket, or, of course, a bit of both.

Unfortunately, some unscrupulous providers give the industry a bad name. This applies to our industry as well, so it is imperative that consumers always do their homework prior to deciding on a provider, whatever the transaction being considered.

The Reverse Mortgage is here to stay; truly a product whose time is at hand. But it isn’t for everyone, and using one certainly isn’t an easy decision. As with most

intricate financial planning concerns, a qualified, fee-only Certified Financial Planner can help you with these decisions.

For more information, please contact us or Marshall Gallop (link on our website), and listen to the Van Wie Financial Hour for continuing discussions of the Reverse Mortgage Planning Tool and all other timely topics.

Van Wie Financial is fee-only. For a reason.