• Menu
  • Skip to right header navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Before Header

781-843-5553  |  Blog  |  Request a Consultation  |  Contact

Harbor Mortgage Solutions

Mortgage Services for Massachusetts and Rhode Island

  • Conventional Mortgages
    • Buying a Home
    • Home Equity Financing
    • Refinancing Your Home
  • Reverse Mortgages
    • Types of Reverse Mortgages
    • Reverse Mortgages for Condominium Owners
    • Reverse Mortgage Information
    • Navigating the Reverse Mortgage Process
    • Reverse Mortgage Rules
    • Reverse Mortgage Myths
  • Resources
    • Blog
    • Webinars
    • FAQs
    • Glossary of Terms
  • About Us
    • Meet Our Team
    • Professional Network
  • Conventional Mortgages
    • Buying a Home
    • Home Equity Financing
    • Refinancing Your Home
  • Reverse Mortgages
    • Types of Reverse Mortgages
    • Reverse Mortgages for Condominium Owners
    • Reverse Mortgage Information
    • Navigating the Reverse Mortgage Process
    • Reverse Mortgage Rules
    • Reverse Mortgage Myths
  • Resources
    • Blog
    • Webinars
    • FAQs
    • Glossary of Terms
  • About Us
    • Meet Our Team
    • Professional Network

What’s In A Name? Apparently A Lot When It Comes To Reverse Mortgages

August 17, 2017 //  by George Downey

Like the late comedian Rodney Dangerfield, reverse mortgages…don’t get respect.  Not much anyway.  Why?  That question and the broader issue of seniors’ general reluctance to use home equity has been the subject of numerous studies.  Most recently, examinations by The Center for Retirement Research at Boston College, the Bloomfield, NJ-based Reverse Mortgage Funding (RMF), a leading national lender, and Reverses Mortgage Daily, an industry trade publication, shed new light on this puzzling question. 

Their conclusions are a bit disturbing, but insightful.  Disturbing in the sense that home equity (housing wealth), clearly the largest asset most seniors own, is rarely considered in traditional financial wealth planning practices.  Properly managed, housing wealth could potentially improve retirement security and reduce longevity risk and other risks of aging.  However, most seniors, along with the majority of professional advisors, have yet to recognize this dormant resource as a mainstream solution.  These studies provide some clues.

Blind Tests Yield Startling Results

RMF, as reported by Alex Spanko in Reverse Mortgage Daily (3/28/17) sponsored studies gauging consumer and professional advisors’ reactions to the merits of  traditional bank Home Equity Lines Of Credit (HELOCs) against the FHA insured Home Equity Conversion Mortgage (HECM) reverse mortgage.  Two comparison tests with the same information were conducted where: (1) The product names were identified at the outset; and (2) The product names were not known up front – simply identified as Product A and B.  Separate groups of consumers and professionals were tested and then asked which product best fit retirees needs.

                                                                                      Bank HELOC                     HECM Reverse Mortgage

Product name KNOWN up front

              Consumers                                                        68%                                             32%

              Professional Advisors                                      37%                                             63%

Product name NOT KNOWN up front                         

Consumers                                                                     42%                                             58%

Professional Advisors                                                   57%                                             43%

More recently, RMF conducted another blind test fashioned after the Coke-Pepsi Challenge of days gone by, which included 88 consumers (Watch Video).  This time 85 of the 88 chose the HECM reverse mortgage.   These results conclusively demonstrate that consumers and advisors have limited actual knowledge of reverse mortgages and appear more influenced by perceived reputational issues and misconceptions.  Consequently, the “reverse mortgage” name, it appears, may trigger pre-conceived negative attitudes that dampen further interest.

Is Home Equity An Underutilized Retirement Asset?

According to the Boston College Center for Retirement Research analyst, Steven A. Sass, home equity is the most underutilized asset in retirement financial planning.  In an academic brief published in March 2017, Sass explains the foundational issues why it is not commonly used, and advises that downsizing and/or a reverse mortgage provide allow households to use their home as a valuable resource for retirement security.  The brief’s key findings are:

  1. Home equity, the largest asset for most households entering retirement, and can be best used by downsizing or by taking out a reverse mortgage.
  2. Few households currently use either option due to: (a) behavioral and informational barriers; (b) preference to stay in one’s home; and, (c) high transaction costs.
  3. Behavioral and informational barriers, not high transactions costs, are the primary factors  that impede the use of reverse mortgages.
  4. An open question is whether more retirees will overcome those impediments and tap home equity in response to growing financial pressures.

ReLOC vs. HELOC

Well-known retirement researcher and planning expert, Tom Davison, PhD, Ohio State, created a new more descriptive label for reverse mortgage – ReLOC (Retiree Line Of Credit).  If we can get around the name issue and open minds to new information, Dr. Davison makes some compelling points in his blog, Do You Prefer a ReLOC or HELOC?  The following section, taken from the article, is especially significant.

ReLOCs share many features with HELOCs, three unique features make a ReLOC a line of credit designed for retirees:

  1. The amount you can access grows every month
  2. You don’t have to make payments until you permanently leave your home
  3. The loan can’t be canceled, reduced, or frozen as long as you keep up with basic mortgage obligations (property tax, homeowner’s insurance, basic maintenance, and Homeowner’s Association dues).

Here’s the borrowing limits for a ReLOC and a HELOC for a 63-year-old in a $400,000 house who lives to age 99:

ReLOC borrowing limit starts at $200,000 and grows at 4%. HELOC starts at $200,000 and lasts until the draw period ends at 10 years.

Read the full article here (Link)  

NOTE: When the $200,000 HELOC credit line closes in ten years, the ReLOC credit line amount available approaches $300,000, and continues to grow compounding monthly.  This illustration assumes no withdrawals, which may not be realistic, but clearly demonstrates the value of compounding growth.  Furthermore, the credit line growth is guaranteed by HUD/FHA and continues regardless of any change (up or down) in future property values.

Dr. Davison’s illustration clearly demonstrates the near and longer term potential a ReLOC provides compared to a traditional HELOC.  Having guaranteed access to this growing line of credit for life (as long as the loan remains in good standing) without payment obligations or personal liability empowers the planning process to provide a higher sustained quality of life with reduced longevity risks.

Thus, with the foregoing in mind, does the label “reverse mortgage” arouse negative feelings and influence attitudes that cloud judgement?  The group test results cited above would indicate it does.  Would a new name like ReLOC, or another name, make a difference?  Maybe, we don’t know yet.  What we have learned, though, is that blind test comparisons conclusively favor selection of a reverse mortgage over traditional bank home equity lines of credit.  That may be a game changer.

Category: Uncategorized

Previous Post: « Harbor Mortgage Riding for Pan-Mass Challenge
Next Post: Savvy Financial Planners Seize Home Price Spike (Bubble) To Help Clients »

Primary Sidebar

Recent Posts

  • Historic Home Prices Benefit Seniors Who Don’t Want To Sell
  • How To Eliminate Mortgage Payments and Increase Financial Security Without Selling the House
  • Senior Homeowners Relieved from Making Mortgage Payments
  • Draining Retirement Savings to Pay Debt is Dangerous – There May Be a Better Way
  • Record Setting Home Values – A Godsend To Savvy Seniors Who Want To Age In Place

Footer

Harbor Mortgage Solutions, Inc.
100 Grandview Road, Suite 105
Braintree, MA 02184

781-843-5553 Local
781-843-6661 Fax
800-599-8700 Toll free

Follow Us on FacebookFollow Us on TwitterFollow Us on LinkedInFollow Us on YouTube

NMLS #2846
Massachusetts License MB2846
Rhode Island License 20041821LB

We are a mortgage broker. We do not make loans – we arrange residential mortgage loans through our diverse network of national and local banks and other institutional lenders.

Copyright © 2023 · Harbor Mortgage Solutions, Inc., 100 Grandview Road, Suite 105 | 781-843-5553 · All Rights Reserved