It may not often occur to a mortgage professional to reconsider the characteristics of Home Equity Conversion Mortgage (HECM) products as “money”. However, depending on the needs of the borrower, the HECM can fulfill a specific need that the borrowers see as an investment, reverse mortgage education employer Craig Barnes said during a webinar sales conducted by the National Reverse Mortgage Lenders Association (NRMLA).
Barnes told reverse mortgage professionals during the presentation about the potential for unique HECM products — especially for borrowers who need the relief that a reverse mortgage can provide.
HECM is a special product
The HECM structure is a unique product that comes with the right solutions that can be found, Barnes said. People are willing to pay more for a product that comes with special features – or the price is a sign of quality.
“Why wouldn’t you pay more for a product with better features, or a higher level of features?,” Barnes said. “We’ll pay more for a first-class airline seat with more legroom, or a better-looking car, or a cell phone plan. Those are the parts we are willing to pay more for. Why not pay off a mortgage that doesn’t require monthly payments and interest, and can’t be used?”
Reverse mortgage products are generally considered a follow-on loan. However, mortgage brokers will benefit more by selling a HECM as a stronger mortgage, especially since there is an assumption of higher interest rates. related to the product, Barnes said.
“Well, why don’t we think the same way about mortgages? Have you considered paying more for a mortgage? No,” he said. “On HECM, we know that closing costs can be more expensive, especially if you qualify for a MIP (compared to) a traditional mortgage. But what do you get for that? high prices? Well, you don’t need to make the principal and interest. You don’t have to pay back more than the house is worth. There is a line of credit growth, and it is insured by the government.”
Selling a reverse mortgage as a special product with additional features can also help change customers’ perceptions of the product. he said.
Reverse mortgage requirements
Defining the HECM as a “payday loan” is not only a tool, but it can also help meet the needs of reverse mortgage borrowers. One way to show this is through average balances in 401K accounts, he said.
According to information from Vanguard (via Internal Business), the average 401K balance for someone age 65 or older is $255,151 – and the average is $82,297. For those between the ages of 55 and 64, the average is $232,379.
For a senior on the cusp of retirement who must last their retirement savings for the rest of their lives, the average $250,000 balance may not be enough.
“That’s not enough to retire,” he said. “That’s when we look at what we can do, and maybe a solution we can give to that borrower who wants to retire, but maybe doesn’t have enough money to do it.
Some specialized products can be a solution, especially when it comes to the HECM line of credit, Barnes said. They can also eliminate potentially costly items in the process.
“Set up a line of credit for future use,” he said. “A line of credit builds up over time the longer they leave it there. And even if they use it, the unused portion is still growing. That’s something to think about. it’s a safety net (retirement). And what’s their retirement, if they get one? That’s the mortgage payment they’re getting today.”
‘It’s been a month since my money ended’
Inflation and other expenses can also affect a senior’s retirement plans, Barnes said.
“They don’t have enough money coming in to cover their expenses,” Barnes said. “A line I heard many, many years ago was from a borrower who said, ‘I have too many months at the end of my loan.’ This is good news when we consider the typical situation that a borrower may find himself in. They don’t have enough money.”
Another financial obligation that may not be related to adults is debt, including debt. The average adult between the ages of 65 and 74 has about $7,030 in debt, according to records from the 2019 Survey of Federal Income. That figure rises to more than $8,000 for a senior or over 75.
Baby Boomers are more comfortable with debt compared to their parents from the Great and Silent Generations, Barnes said.
“They have a lot of mortgages, they have refinanced the houses they bought, they have a lot of debt, even credit cards, they have their debt payments, like car loans, etc.,” he said. “Maybe they applied for a credit card because it was raining outside and they got a free umbrella.”
If a senior needs extra cash to get them out of high-interest debt, a reverse mortgage is one option they can explore, Barnes said.