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Reverse Mortgages: Changing the Perception

From the story of Cinderella, we see the mean stepsisters team up with their mother to give Cinderella an array of misfortunes. She suffered endless abuse and ridicule at the hands of the family. But as it turned out, she was the perfect choice for the prince. However, it was not until she appeared at the ball that she got the prince’s attention.

Like Cinderella, reverse mortgages are essential financial tools to help solve the retirement crisis. Although millions of retirees are eligible for the financial package, the uptake is still low. Only 50,000 baby boomers apply for a reverse mortgage every year.

Why is the uptake so low? When will seniors recognize reverse mortgage as an essential financial tool and not a loan of last resort? It all begins with a change on four essential pillars.

Here we examine the four pillars that will change the perception of baby boomers on reverse mortgages.

1.  Mortgage Industry

Since its inception in the late 1980s, the reverse mortgage industry has been its enemy by spreading the wrong message. It is not uncommon to find billboards, mail pieces, TV and newspaper ads sponsored by the industry portraying the product as a last resort to overcome a crisis.

Because of the negative publicity, baby boomers grew up knowing that you should be too old and broke to qualify for a reverse mortgage.

On the contrary, a reverse mortgage is not a way out of disparity. It is neither an emergency funding tool to pay for expenses when cash-starved.

Reverse mortgages are retirement tools indeed, but they shouldn’t be a tool of last resort. According to financial experts, the best time to have a reverse mortgage is as soon as you turn 62 and not when you have no cash in your retirement baskets. Therefore, do not wait until you deplete your financial assets to apply for a reverse mortgage if you are a senior.

2.  Public Perceptions

According to surveys conducted to monitor media coverage, reverse mortgages had a 90% positive coverage for the first time in 2016. These came from newspaper ads, magazines, articles, and TV ads.

However, 86% of seniors still had little interest in acquiring reverse mortgages, thanks to negative public perceptions.

Therefore, to increase mortgage uptake, the public perceptions must change.

3.  Government Input

Since the program’s launch, there have been success stories of seniors making remarkable achievements. Some have up-scaled to spacious and expensive homes with luxurious amenities. Some who used the money wisely also lived a productive retirement full of financial independence.

As a result, the government experienced relief by reducing the number of seniors depending on social security. Despite the numerous achievements, the government spends little effort in spreading awareness about the positive outcomes.

Furthermore, the government spends half of its budget on Medicare and social security and only $6 trillion in reverse mortgages. The disparity in fund allocation indicates the government’s imbalanced input in supporting the baby boomers.

4.  Financial Advisors

For many years, stakeholders in the financial sector ignored reverse mortgages. Key industry players like the Financial Industry Regulatory Authority led the onslaught against the product, terming it a ‘reversal of fortune.’

Additionally, 90% of financial advisors viewed reverse mortgages as a financial tool of last resort. They held preconceived prejudices based on articles that the industry published to the public.

While offering advisors to clients, experts focused on the downside of the loan. They deliberately failed to tell retirees that reverse mortgages were safe, government-backed loans that could offer financial longevity after retirement.

In 2012, the Journal of Financial Planning began publishing positive stories about mortgages. One after the other, financial experts published articles that portrayed reverse mortgages as essential financial tools for use at 62 and not in your 80s, when you are soon dying.

Contrary to what financial advisors proclaimed, reverse mortgages are not bad. With the correct information, clients can begin appreciating their value and benefit in building a long-term financial plan. It begins from the point when financial advisors will stop spreading the wrong information and begin teaching baby boomers about the long-term benefits of reverse mortgage plans.

Reverse Mortgages: Will They Overcome Neglect?

Reverse mortgages give retirees a quick financial asset, with flexible repayment using home equity. However, they continue recording low uptake from prospective beneficiaries. Financial advisors also hold an opposing viewpoint, although not as before. But baby boomers can change their perception about reverse mortgages, given the correct information.

Before then, four essential pillars will play a role in improving the uptake.

First, the mortgage industry should begin disseminating the correct information to potential beneficiaries. Secondly, seniors should change their perception and embrace reverse mortgages, not as a tool of last resort. Additionally, the government should be at the forefront to showcase the program’s success stories. Lastly, financial advisors should help clients understand the long-term benefits of reverse mortgages.

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