The New Reverse Mortgage is part of a well thought out retirement plan
The New Reverse Mortgage can help you access your most valuable asset
In it’s current state your home’s equity has the same value as monopoly money, it’s nice to think about but it won’t be much help in a financial emergency. With the New Reverse Mortgage you can access that money and put it to use (or just have it available when you need it) in a way that best matches your retirement goals.
While The New Reverse Mortgage necessarily reduces the home equity that becomes available to the borrower’s estate, in most cases it does not absorb all the equity, writes Jack Guttentag, a.k.a The Mortgage Professor, in a recent article.
Taking advantage of home equity has helped many survive economic downturns
Borrowing on one’s equity to support a chosen lifestyle is not a new concept. California homeowners have been doing it for years. They just called it cash out refinancing and home equity lines of credit.
Using your home’s equity in retirement is more critical because you likely won’t have the income nor the time to replenish your other investments.
The New Reverse Mortgage can help maintain other investments
Just like all your other retirement investments, a Reverse Mortgage when used with discretion can actually help maintain your other investments by using the tax free income feature when paying for those unforeseen expenses that happen in everyone’s life.
Even if you’ve prepared well for retirement these “life events” can dramatically change the quality of your retirement. The Retiree’s Equity Line of Credit (RELOC) gives you a “safety net” so the costs of these events can be covered with tax free monies.
For example, if you needed in home health care and had to tap into your IRAs to cover the expense. Not only would you have to withdraw enough to cover the care, but you would need to cover the taxes due on the amount withdrawn. That could be as much as 10-20% additional. Not only would the Reverse Mortgage cover those expenses without depleting your other assets, you would also avoid that 10-20% surcharge for income taxes.
The New Reverse Mortgage can be an insurance policy against another recession
Most of us invested in California real estate because it was a good investment and historically has grown at a rate much faster than the national average of 6%. If we go conservative and use the national average growth rate of 6%, your California home that is today worth $400,000 will have a value of more than $700,000. Even at half that rate your home would be worth $550,000
Recalling 2007-2010 home values in California dropped 50% or more in most neighborhoods. Imagine if that happened again and you weren’t protected? In retirement that could be devastating.
“Parenthetically, this use of a HECM as an insurance policy against unknown contingencies has got to be the best bargain available in financial markets,” Guttentag writes. “If the senior never has to use the policy, all her home equity except the inconsequential amount she owes on the HECM will go to her heirs. And if she does need to draw on the credit line to pay her bills, no one will question the decision.”
The New Reverse Mortgage isn’t for everyone…but it could be!
If you’re still wondering if a Reverse Mortgage is the right solution for you but you’re not ready to sit down with one of our Reverse Mortgage Experts, then we’ll be happy to mail (or email) you Use Your Home to Stay at Home which is the official federally approved consumer booklet for those considering a reverse mortgage.
Some of this information first appeared on ReverseMortgageDaily.com