Reverse mortgages can be used as an insurance policy under the Home Equity Conversion Mortgage Saver program, financial planning expert Harold Evensky tells the Journal of Financial Planning in a Q&A.
Citing a paper he published recently on the use of the Saver reverse mortgage as a financial planning tool, Evensky explains how his mind was changed on the use of reverse mortgages.
“Up until very recently, pretty much like every other practitioner, I wouldn’t touch [reverse mortgages] with a 10-foot pole,” Evensky tells the Journal of Financial Planning. “What changed that was a year or so ago when a new product came out called the [HECM] Saver, which is very analogous to a home equity loan, a HELOC. The difference is, with HELOCs, as we learned the hard way, there’s nothing guaranteed.”
Advocating the use of the Saver essentially as a standby home equity loan, Evensky explains the way borrowers can keep the reverse mortgage as an option for times when their retirement portfolios are underperforming.
“When markets recover and get better you pay it off again, so it’s not designed to be a leverage investment strategy; it’s not designed as a credit strategy,” he says in his response. “We see it simply as risk management, “insurance” against a volatile market allowing investors to remain invested through those volatile times.”
The study, which ran hundreds of simulations of retirement portfolios led the researchers to conclude the use of reverse mortgages is effective in almost all cases.
“…our conclusion was, anyone who qualified for it should consider doing it. And there’s a high probability, based on our simulations, that most investors would never have occasion to draw on it, but as I said, we see it as an insurance policy.”
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