Emotion Vs Logic and Reverse Mortgages
The interesting thing is that when people make financial decisions, they often make them emotionally even though numbers are very logical. Two plus two always equals four, yet emotion comes into play in almost every financial decision. I’ve never seen a situation that has evoked more emotion than a reverse mortgage loan. People come up with all kinds of nasty words about them. Like they’re the loan of last resort. They’re something that preys on the elderly. They are bad; they cause people to lose their homes to foreclosure.
These all typify that reverse mortgage loans are something to stay away from and avoid. So most people conclude that reverse mortgages are something to be avoided at all costs. They are something to be used at the end when people are broke when they have no choice. When the piggy bank is broken, and the last garage sale is done, that is when we should get a reverse mortgage. That’s the emotion that comes out. But the fact is that logic, research, and facts tell a very different story.
So let’s look at reverse mortgage facts. There has been lots of research by PhDs, and MBAs in universities that have done extensive studies such as Texas Tech University. The bottom line is that all of the studies done at these colleges, and by many of these brilliant people that have no vested interest in the reverse mortgage product, have found that the best time to get a reverse mortgage is very early in retirement. At age 62, not 82, not 92, but right at the beginning. And they did this by looking at it logically*.
Sources: Standby Reverse Mortgages A Risk Management Tool for Retirement by John Salter, Ph.D., CFP®, AIFA®; Shaun Pfeiffer; and Harold Evensky, CFP®, AIF®; The 6.0 Percent Rule, by Gerald C Wager, Ph.D.; Understanding the Line of Credit Growth for a Reverse Mortgage, by Wade D. Pfau, Ph.D., CFA
The three buckets of wealth are their income and nest egg, their retirement money, and their home. When their home was tapped into the situation, at age 62, there was some income taken out of the house, three important things happened. The first thing is that their cash flow increased. They had more money in retirement to enjoy retirement the way they expected to. Along with that situation, with the increased cash flow, the taxes paid on their income tax returns usually went down, and they did not spend as much in taxes because of the strategic withdrawals that they made with IRAs*. Most importantly, their portfolio longevity - the length of time that people’s money lasted - went up because they were able to use more money from their house before depleting all the wealth from their retirement accounts. The last thing was perhaps the most surprising and the most interesting. People with a reverse mortgage ended up with a higher net worth, not a lower net worth, when they took reverse mortgage money at the beginning of retirement, rather than at the end. Of course, the reason that happened is that they used less of their investment accounts and more of their home equity.
Let’s talk about the people who already have reverse mortgages - those are the people that are the most satisfied. In my personal experience with 1,000+ borrowers over the last decade or so, not one of them has been unhappy with their reverse mortgage. They only wish they would have gotten it earlier. The bottom line is when we look at the emotions that surround reverse mortgages and what has been published and supported by independent studies, you will find the benefits of reverse mortgages overwhelmingly more significant than the risks or the costs.
So take a look into it. Have an open mind, and when you talk to one of our reverse mortgage planners, just set your emotions aside for a second. Set aside some of the things that you might have heard from your relatives, or people at work, or maybe an uneducated or uninformed professional. Then take a look at the facts, and things that have happened to make a genuine difference. Retirement can be done in a very different way with Fairway Independent Mortgage Corporation. But don't take our word for it. You can use our free reverse mortgage calculator to see what you may qualify for.
And if it makes sense for your situaiton, a local Reverse Mortgage Planner for more information about how a reverse mortgage loan works. We would be happy to be your reverse mortgage lender. And if you're looking for more articles, resources, etc. we've got you covered.
*This advertisement is not tax or financial advice. You should consult a tax and/or financial advisor for your specific situation.
November 20, 2018