Why you should present at least 4 options to potential borrowers

No one likes to feel they’re being pushed into one product or solution. That’s why the best reverse mortgage originators take a more holistic approach that presents a variety of options that could allow them to tap into their home’s value.

This approach empowers the homeowner and puts them in the driver’s seat of choosing just how they could potentially tap into their home for a myriad of needs and reduces resistance to a one-size-fits-all presentation.

The first step is to determine their overarching goal. What is it they want to accomplish? To simply have access to funds as needed? Is it to eliminate the burden of their existing monthly mortgage principal and interest payments? Or, is it a means to accomplish a more complex financial goal such as a Roth conversion?

Whatever the goal may be it’s wise to present potential solutions and examine how well each would or would not help them achieve their objectives.

With that in mind, here are just four ways an older homeowner may choose to tap into their home’s value.

Option 1: A Home Equity Loan

A home equity loan, also known as a second mortgage, enables seniors to borrow a lump sum of money based on the equity they have in their homes. The loan is typically repaid through fixed monthly payments over a predetermined term.

Questions to ask: Does this meet your objectives? Would increasing your monthly mortgage obligations put a strain on your cash flow?

Option 2: A Home Equity Line of Credit (HELOC)

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A HELOC is a revolving line of credit that allows seniors to borrow against the equity in their homes, similar to a credit card. Unlike a home equity loan, a HELOC provides borrowers with the flexibility to access funds as needed within a predetermined credit limit. Interest is only charged on the amount borrowed. Typical HELOCs have a 5-10 year draw period when funds can be accessed followed by a repayment period with required monthly payments.

Questions to ask: Does this meet your objectives? Did you know a lender can freeze or eliminate your credit line? Would increasing your monthly mortgage obligations put a strain on your cash flow?

Option 3: Sell the home

While HELOCs or home equity loans allow the homeowner to retain the home and property while tapping into some of the home’s value, selling the home separates any remaining home equity in one fell swoop. This option is appealing to those who may want to downsize or ‘right-size’ into a new house, relocate, or move into an assisted living facility.

Questions to ask: Does this meet your objectives? Are you familiar with the costs incurred in selling your home such as realtor fees, etc? Would you look to take the equity from the sales and purchase a new home (a H4P opportunity)? If you’re planning on renting, are you comfortable with the likelihood of increasing rent payments?

Option 4: A Reverse Mortgage

If you want to empower the homeowner with viable choices it’s best to present the option of a reverse mortgage last. This allows you to compare and contrast a reverse mortgage against a home equity loan, HELOC, or an outright sale. This holistic approach positions you as a problem-solver instead of a product-pusher.

Questions to ask: Does this meet your objectives? Are you planning to remain in this home for the foreseeable future? If so, for how long? Are you comfortable in using some or most of your home’s value instead of passing its value onto your children? How would your life change if you no longer had to make monthly mortgage payments?

When it comes to tapping into one’s home value older homeowners have several options, four of which we have summarized. While all provide access to a portion of the home’s appraised value while maintaining ownership, only the reverse mortgage offers such access without the burden of monthly mortgage payments.

Which choice best fits your potential borrower’s needs? Determine that first and then move forward matching their objectives with each loan. Let them tell you which is the best fit because if you say it they’ll doubt you- but if they say it then it’s true!

-Shannon Hicks