Older baby boomers who are strapped for income when they retire could find help right at home, as many seniors are doing now by turning to reverse mortgages.
Currently, with a total of over $3 trillion in home equity, seniors age 62 and over represent a major market for reverse mortgages to fund life insurance and related financial products, says James Mahoney, CEO of Financial Freedom Senior Funding Corporation, Irvine, Cal.
Mahoney, whose company arranges reverse mortgages, says financial advisors can actually help certain clients increase their net worth by using this funding vehicle.
A reverse mortgage is a loan to homeowners age 62 and up that is backed by part of the equity in their home.
Clients often use loan proceeds to provide a stream of retirement income or for other important financial purposes. The most common type of reverse mortgage is the FHA home equity conversion mortgage, which is federally insured.
The top three uses for mortgages provided by Financial Freedom have been to buy long term care insurance, annuities for long-term income, and life insurance for estate planning and wealth transfer, Mahoney says.
With a reverse mortgage, the borrower–not the bank–holds title to the home during the life of the loan, notes the National Reverse Mortgage Lenders Association, Washington. The loan must be repaid when the home is no longer the borrowers principal residence.
“At the time of repayment, the borrower (or their heirs or estate) decide whether to pay off the reverse mortgage and keep the home, or sell the home to pay off the loan,” the NRMLA states. “Any remaining equity goes to the borrower (or their heirs or estate).”
Mahoney notes that financial advisors and their clients often use the funding vehicle to provide tax-free estate benefits, so they can pass assets on to heirs.