From housing issues and marketing ideas to lending practices, financial institutions are taking a hard look at current product offerings and deciding how those products appeal to the fast-growing senior market. This is also a market that isn’t going anywhere. A report by the National Association of Area Agencies on Aging noted that by 2030, one out of every five people will be over age 65. By 2012, Americans 55 and older will head 40 percent of all households, according to the 50+ Housing Council.
And they will want to remain the head of their own household. Independent living ranks high among the concerns of seniors and the cutting-edge banks are tapping into that concern. Today’s seniors prefer to stay in their own homes as long as possible rather than move into senior-focused housing. So how can financial institutions help them continue living independently?
For home-owning seniors, funding their own personal goals can be easier than they expect. More than 80 percent of Americans aged 65 and older were homeowners in 2004—with more than $2 trillion in untouched housing assets, according to a National Council on Aging study. The study says that more than half of seniors’ net worth is tied up in real estate.
A reverse mortgage lets homeowners 62 and older turn a portion of their home equity into income. The homeowners won’t have to sell their home or make monthly payments, and the loan isn’t due until the last borrower leaves the residence. The tax-free money can be used for anything, from paying property taxes to medical bills to keeping cash available for emergencies. One National Council on Aging study determined that reverse mortgages could increase private sector funding for in-home services and supports by more than $950 billion.
Reverse mortgage loan production increased more than 100 percent in 2007 compared 2006, and statistics show only about 1 percent of the market is tapped. That speed also means less work for bank staff, however, since inquiries will likely build slowly and sporadically.
Connecticut River Bank in New Hampshire began offering reverse mortgages a little more than two years ago. The $220 million bank has closed on several dozen of the mortgages, with response building after a slow start. Seniors typically receive $700 to $900 per month or receive a home equity line of credit around over $100,000 growing at 6 ½ percent per year.
High property taxes can serve as one incentive for homeowners—homeowners behind on their taxes may want the extra funds to catch up and continue future payments. Other seniors want to fulfill lifelong dreams of travel. Still others have medical costs that need to be addressed.
As a specialized product, the mortgages require underwriters who understand the unique parameters. Connecticut River Vice President Tony Bielarski calls the process very labor intensive. “The seniors who received them are absolutely ecstatic,” he adds.
And the pay-off for the bank is equally certain: “It’s done in a way where the risk isn’t great—you’re eventually going to get paid,” Bielarski says.
Reverse mortgages are only one aspect of the trend toward seniors. Banks are targeting the growing market with a variety of products. In part, these efforts are about the power of marketing. By crafting a product specifically for seniors or allotting particular staff or programs, institutions send the signal that they value those customers’ business.
Specialized accounts, like senior Checking, offer seniors perks related to their lifestyle and concerns. That might mean prescription discounts, CD rate bonuses, and perks like no service charges and free checks. Other senior-geared checking accounts pay interest, promoting the safe and steady profits possible with the accounts.
From senior clubs to day trips to educational seminars on savings and lending options, banks are using with educational activities to target retirees—with daytime hours to spare. These events create a sense of community and go a long way toward making customers more comfortable with their financial institution. It’s not uncommon to find a bank sponsoring a day trip to the nearby mountains or a picturesque town, then following up with snapshots on the Web site. Or maybe a seminar on reverse mortgages includes a reception with tea and cookies. In a relaxed setting, customers are not only more likely to develop customer loyalty, they’re more likely to ask the questions they want and need to ask.
Personal contact is another way to foster a friendlier, less intimidating financial atmosphere; many institutions are assigning specific staff people as liaisons to seniors. Instead of a title, customers (and potential customers) know a name and often a face. These designated staff people foster a personal connection.
