Reverse mortgages are a financial tool that sees a significant divide in understanding, leading to their underutilization. According to a recent study conducted by WSFS Mortgage, 79% of homeowners understanding reverse mortgages agreed they could enable homeowners to stay in their homes longer while enhancing their cash flow in retirement.
Over the past decade, reverse mortgages have undergone significant transformations. Notably, we are seeing more financial advisors incorporate housing wealth into retirement income planning. According to Jeffrey M. Ruben, President of WSFS Mortgage, a reverse mortgage could be a decidedly beneficial option for retirees desiring to strengthen their cash flow.
The study surveyed 750 nationwide homeowners aged 60 and above, assessing respondents’ financial stability and knowledge and attitudes regarding reverse mortgages. The key finding was revealing a lack of knowledge about reverse mortgages, steering potential borrowers away.
A concerning 31% of respondents confessed to being completely uninformed about reverse mortgages, with 40% slightly knowledgeable and 22% moderately knowledgeable. A meager 7% claimed to be very knowledgeable about this financial tool. Compared to other financial products such as credit cards, traditional mortgages, personal loans, and lines of credit, the understanding of reverse mortgages significantly lacks.
Jamie P. Hopkins, Senior Vice President, Director of Private Wealth Management, Bryn Mawr Trust, notes that it’s unsurprising most Americans are uninformed about reverse mortgages. Most Americans interact with borrowing techniques like student loans, credit cards, and traditional mortgages early in life, unlike reverse mortgages, which are generally utilized later in life. Hence, there is an imperative need for better education on this subject.
Interestingly, the study found that 34% of respondents would consider a reverse mortgage if it were relevant to their financial situation. Moreover, the more knowledgeable respondents showed a likelihood towards obtaining a reverse mortgage after learning more during the study.
Ruben advises homeowners to understand the basics of reverse mortgages. He explains that homeowners can access funds from a reverse mortgage in lump sums, monthly payments, or a line of credit set up for necessary times. They can help eliminate existing monthly mortgage payments, add cash flow without dipping into retirement savings, and more. For those looking to downsize, selling their current home and using the proceeds with a reverse mortgage on a new house may allow the purchase without needing monthly mortgage payments.
Reverse mortgages can substantially aid retirement and financial planning by providing supplemental income. For instance, if a homeowner used it strategically, a reverse mortgage could replace the traditional investment portfolio as a source of cash flow. It could help cover long-term care, provide retirement income, manage cash flow, and offer tax planning benefits because it is not considered earned income and is thus not taxable.
What is crucial to note is that homeowners must remain current on property taxes and insurance. Expert advice from financial advisors can demystify reverse mortgages, lifting the stigma of being a ‘last resort’ and evaluating if it is the right choice for individual circumstances.
Ultimately, many homeowners hold the ticket to a potentially substantial financial resource in their hands in the form of their homes. As we navigate the retirement landscape, financial advisors can offer guidance. With better education on reverse mortgages, homeowners can make wise decisions for financial freedom in their twilight years.
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This article is intended for informational, entertainment or educational purposes only and should not be construed as advice, guidance or counsel. It is provided without warranty of any kind.