MortG is a multi-function mobile application designed for mortgages. Available for the USA and Canada market, in French, English and Spanish, this app does it all from calculating payments, closing costs, pre-approval, rent/own analysis, paying down, refinancing, debt consolidation, penalties, buying point analysis, ARM vs VRM, Retirement Plan and Reverse Mortgage Analysis…
When I meet someone and they learn about my knowledge of the financial industry, one time in two, I get asked about whether or not reverse mortgages are a scam. My answer is that it is not a scam. I then get asked whether they should get one. Invariably I have to ask whether they have an advisor or not. In 90% of cases they do. Then comes the most simple but also the most obvious question:
“Will you have enough money to retire?” In most cases the answer is a blank stare.
This is the most important question for Canadians and in most cases Canadians are not able to answer this simple question. Why is that? If the person inquiring about reverse mortgages knows that they will have sufficient money to retire, I follow with another question by asking them what is the probability of them reaching their retirement goals. In 100% of cases they don’t have this information.
As a result 100% of Canadians are not receiving the right information on their retirement and it’s therefore not surprising they are not getting the right information on reverse mortgages. If an advisor believes that reverse mortgage are wrong, he will have to provide a retirement plan to his clients that will generate the required retirement income with a 100% probability of success.
Buy/Hold: Opting out of getting advice…
I do have a big problem with the Buy/Hold strategy as this strategy is used by financial institutions and advisors in opting out from providing the right financial advice to their clients.
The Buy/Hold strategy assumes that money invested in the market has always been there and will always be there. As a result, why should you care if the market will crash. Just hold your position. Have you ever heard an expert on TV, saying the market is overvalued and therefore very volatile providing little upside potential compared to the downside? As a result, if you are 10 years from retirement, holding the position on your investment, is extremely dangerous and could destroy your retirement plan.
No the advice is to eternally hold and forget about risk and volatility and this is why Canadians have no clues about where they are situated in relation to their retirement goals.
Probability, what is this?
In MortyG, our mortgage application, when the client enters his retirement assets and goals in the calculator we not only calculate the retirement surplus or shortfall, we also calculate the probability of doing worst than projected. This is what is called a “financial cold shower” and it provides quite the perspective.
Every Canadians planning for retirement should have this info but they do not.
Is Reverse mortgage the answer?
This is the wrong question to ask. The right question is whether the value of the family home will have to be included in the retirement plan. I would state that for at least 75% of Canadians, the family house will have to be considered a retirement asset.
When we recognize this, then the question is how the equity of the home will be accessed. The best solution is always to downsize by moving into an apartment or into a smaller home.
Still for some retirees, the idea of downsizing will not be appealing and this is when a Reverse Mortgage will become a great retirement option. Some Reverse Mortgages options are better than others. We strongly advise against lump sum Reverse Mortgage. If a client is short on his retirement, then this means that their financial acumen is lower than average and the potential of using the lump sum for something other than retirement is too great.
As a result, a Reverse Mortgage offering a level amount over a number of years is the better option.
Finally, if a client needs a Reverse Mortgage, it should only be taken when needed. If the retirement shortfall occur at age 85, the reverse mortgage is taken at age 85 and not at retirement; such as age 65. This is a NO!NO! The reason is because this would transform the Reverse Mortgage into a “camouflaged” leveraging strategy! And we know what happens with leveraging. The client always ends up losing his money!