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Reverse Mortgage as a “Pension”?

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Revisiting the Tenure Payment & the HECM as a Long Term Solution
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Pensions or defined benefit plans have become nearly as rare as the California Condor.

Reverse Mortgage Payments

It’s a bleak outlook for today’s retiree but there is a silver lining. It’s been overlooked especially with the recent popularity of the fixed rate product and lump sum withdrawal. The adjustable rate HECM and tenure payments. Tenure or lifetime payments from a reverse mortgage providing a steady and predictable stream of income. A Recent article by Phillip Moeller in Money Magazine entitled “How to turn your home into a pension” said…

 

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6 Comments

  1. Yes, I mention the tenure payment option with EVERYONE I consult with. The most common comment is that it is too low of a payment. A solution to is allow the line to grow and appreciate and then lock into the higher payment when it is needed, or IF it is needed. The saver has many of these options as well, at a lower cost.

  2. I have had a little success with the Tenure payment option with some of my clients over the years. I’ve always been able to talk most of them out of the lump sum option and into the Line of Credit, but the monthly payments (Tenure or Term) has always been a difficult sell. I find that their two biggest concerns are that they are not comfortable with the monthly amount on a Tenure payment (they think it should be much more) and also they fear that the money will dry up down the road and disappear much like their pensions already have. Mostly they opt for the LOC with a draw of cash at close for an immediate need. Generally, because it has been the pattern with our program, the immediate need is what sent them to us to begin with. When we can change our products image away from “The Loan of Last Resort” to an honest to goodness “Financial Option that Insures Cash Flow during Retirement”, we will then see more clients choosing the Tenure. Better education, earlier in the retirement planning process, is the key to our clients seeing reverse mortgage as a legitimate financial strategy instead of a last resort needs based solution.

  3. WHAT HAPENS TO THAT INCOME WHEN THEY LOSE THE HOME SELL IT OR?? THEY NEED MAX CASH OUT FOR AN ANNUITY WITH INCOME THAT IS FOR LIFE,,

    • Mr. Riddle,

      While annuities have their place, an annuity is not a positive value asset. It is an insurance product and like the casinos in Vegas, overall the house always wins.

      Most borrowers lose on the costs versus earnings arbitrage when the proceeds of a reverse mortgage are used to purchase an annuity. While portability is a definite plus for annuities, shorter longevity has a price to heirs. Riders for guaranteed premium paybacks have a lower earnings return making the cost to earnings arbitrage even worse.

      Then is the risk of sudden needs of cash. A tenure payout can deal with that without penalty while an annuity will generally have be more difficult to deal with in such situations.

      Annuities have many more risks to heirs than HECM tenure payouts. They also can have more risk to the annuitant; it all depends. This is the risk tolerances of the borrower must be considered and products matched accordingly by their financial planner.

  4. Ms. Crook and Mr. Kalscheur have hit upon the perception issue. Yet we are still in the groping stage still not really sure what the cash payouts really represent and worse, at a loss of words for how to properly describe proceeds payout.

    We also lack creativity. Tenure payouts can be staged to take into account inflation. Neither the banks nor FHA will provide that information but it can be computed so that there is a sufficient line of credit to make the necessary tenure payout elections over the years. If the payouts are too low, other alternatives must be considered including a mixed strategy

    Shannon is right that if we are going to help borrowers we need to help them prepare a detailed budget. Many oppose this approach since they believe we become not only an originator but also cross the line of becoming financial planners.

  5. Bottom line, if we are providers of this product and not opportunists as the past would suggest, we should jump all over this concept to provide for the massive market a product that benefits the senior. The challenges are imminent but the biggest task is truly communicating to the market place the benefits.
    10,000 new Baby Boomers every day.


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