Research suggests that many baby boomer and beyond retirees will not be in a financial position to avoid using home equity as part of their retirement strategy, meaning they will be increasingly turning to reverse mortgage. Senior homeowners are more commonly seeking advice from their retirement planners on whether to consider a reverse mortgage now proactively, or later as a last resort. So, what is the right answer?
A recent study compared the efficacy of two simple strategies: (1) establish a reverse mortgage line of credit at age 62, under current lending and interest rate environments – but do not use the line of credit until the retirement investment portfolio is exhausted. Or option (2) wait until the investment portfolio is exhausted, if ever, and establish a reverse mortgage line of credit then, and subsequently begin to use the proceeds to support income needs until that line of credit is exhausted.
Conclusion: The results showed an estimated 30-year survival advantage for early establishment. This holds true under various future interest rate and home appreciation scenarios for real withdrawal rates between 4 percent and 6 percent. However, postponing the establishment of an HECM line of credit should be considered when the adviser and/or client has good reason to believe that home occupancy after loan origination is likely to be short. In a recent blog article, I discussed how a reverse mortgage line of credit increases each month, and the feature is more valuable the longer the borrower wants to stay in their home. Read it here.
Get the full report on this study from Journal of Financial Planning here.
Seniors 62 and over are eligible for a reverse mortgage regardless of income or credit. Use of home equity as part of a retirement planning strategy is becoming more and more realistic as baby boomers face an uncertain economy. Contact me for more information.
Jan Jordan is a Reverse Mortgage Specialist serving the Fort Collins, Loveland, Longmont, Greeley, and Front Range areas of Colorado as well as Cheyenne and Laramie, Wyoming. Click here to contact Jan and learn if reverse mortgage is right for you.