Let’s face it, times are changing. The economy and financial markets have faced challenges and increased volatility. In the past, financial professionals recommended using home equity as a last resort and letting the home appreciation just happen over time. However, for those who have 50% or more equity in their home, it should certainly be a consideration in a long-term retirement plan. Here are five ways home equity can help you thrive:
1. Improve the likelihood of funding your retirement lifestyle
The worst scenario for a retiree is poor market returns in the early years of retirement. It’s known as Sequence of Returns Risk. If you must liquidate investments to fund living expenses during a down market, the chances of your investments recouping their value in retirement will be significantly diminished.
If stocks must be sold when the valuation is down, it can be dire for funding long term retirement plans. Withdrawing money at the beginning of retirement could have a dramatic effect on the viability of your plan, which is compounded by the need to sell at the bottom of a market cycle. A Home Equity Conversion Mortgage (HECM) line of credit may be the perfect standby to resolve sequencing risks.
Dr. Wade Pfau, professor of retirement income at the American College of Financial Services and founder of RetirementResearcher.com states, “in particular during today’s environment, helping to leave the portfolio alone and not spend from it after a market downturn and sourcing that spending from the reverse mortgage line of credit can help to preserve the investment portfolio, and to create long-term positive impact [safety] net as a piece of a reverse mortgage.”1
2. Right-size/Relocate to another home
Many seniors are unaware that a HECM may be used to purchase a new residence. Are you considering an all-cash close to avoid monthly payments on a mortgage? Would you like to get more house than an all-cash closing can provide? Or, do you like the idea of only requiring half of the liquid funds to buy your new home and utilizing the rest to augment your long term retirement plan? The HECM may be the perfect vehicle.
Using a Reverse for Purchase financial product, you can leverage the equity from your original house to get a more expensive home and/or have cash left over for your retirement plan, travel, pay for your grand children’s education, or anything you want by simply getting a HECM loan instead.
3. Relieve Stress of Monthly Mortgage Payments
For most homeowners, mortgage payments are the most significant monthly expenses, and most of the popular solutions for financing retirement, such as forbearance, second mortgages, and home equity lines of credit are far down the list of wise-money decisions for seniors.
Why? All of them can cause detrimental stress in retirement. With a reverse mortgage, those issues could be handled. No one is going to hassle you about mortgage payments and your stress level as well as quality of life will be enhanced immediately.
4. Delay Starting Social Security Benefits
While Social Security seems complex, in general, understanding the differences in collecting at age 62, 66 ½ or 70 is relatively easy. If you are healthy and don’t require additional monthly income, it could be in your best interest to delay the benefit payments.
As a quick example of someone born in 1957, every year delayed collecting benefits past 62 translates to an increased benefit of about .667% monthly, or 8% per year. For instance, if a person at age 62 started accepting benefits, they may receive $1,450. At age 66 ½ they would receive about $2,000. At age 70, they would receive about $2,560 per month. Again, if you are healthy (working or not), it may make sense to delay your Social Security benefits to get an 8% increase in monthly benefits.
The solution? Why not utilize the HECM Line of Credit (LOC) and draw funds from the line when needed? While you should always consult with your trusted advisor, in many cases it is worth delaying Social Security and collecting the increased amount available to you at a later age.
5. Protect and Preserve the Value of Your Home
Per Harvard.edu2, historical data shows that the housing market crashes about every 18 years.2 However, those figures do not account for significant interruptions, such as a global pandemic. Regardless, 18 years from the 2007-2008 crash puts the next bubble burst somewhere around 2025… if we are lucky.
With a reverse mortgage, your home value is locked-in at the time of the loan. The reverse mortgage is a non-recourse loan that neither you, nor your family, will ever have to worry about becoming a more significant personal burden even if the housing market drops in the future. The HECM LOC can never be frozen or called, without significant default of the loan terms caused by the borrower.3
As always, the above information is the tip of the iceberg in what you need to know about one of the safest government-insured (as well as non-government proprietary jumbo reverse) loan products available. As with any financial instrument, you should always consult the HECM and proprietary jumbo reverse rules and protections with a trusted financial professional and an experienced reverse mortgage originator.
Want to know more than the five ways home equity can help you thrive? Simply reach out to us at Central Florida Reverse Mortgage and let’s discuss how we can help you with a product designed specifically to meet your needs for a lifetime of happiness… while enhancing long term cashflow and quality of life. Feel free to call, text (404-313-9785), or email firstname.lastname@example.org and find out more.
Richard W. McWhorter, NMLS 1618644, with McWhorter Mortgage, LLC, NMLS 1486483, dba Central Florida Reverse Mortgage is an independent reverse mortgage specialist and Certified Mortgage Planning Specialist® exclusively serving Florida (FL LO-44137) and Georgia (GA Mortgage Residential Licensee 57530). Follow him on LinkedIn, the Central Florida Reverse Mortgage website or contact him directly at Richard@CFReverse.com.
McWhorter Mortgage, LLC provides an Equal Housing Opportunity. Information is subject to change without notice. This is not an offer for extension of credit or a commitment to secure a loan. Some restrictions may apply. McWhorter Mortgage is licensed in Florida and Georgia, call for originator recommendations in other states. This material is not from HUD or FHA and has not been approved by HUD or any government agency.