Seniors looking to tap into their homes for cash should consider a reverse mortgage, which can be used as an “emergency reserve” when investments aren’t doing so well, a financial planner advises in an article contained in the AARP magazine .
The introduction of the HECM Saver program, which significantly reduces the upfront costs of originating a loan, is viewed by financial planner Harold Evensky of Evensky & Katz Wealth as “a partial replacement” for a financial tool he recommends to retirees, a $100,000 cash reserve that can be used for monthly expenses rather than spending down investment funds in poor markets.
Most people can’t set aside that much cash, says the article, so getting a HECM Saver as what Evensky calls a “standby reverse mortgage” can be an alternative.
“We can reduce the client’s emergency reserve to six months,” he says in the article. “If that runs out, you simply tap the reverse and pay it back when things get better.”
When used in such a manner, a reverse mortgage can help an investment portfolio “last 20% to 60% longer in retirement, depending on the scenario specifics,” according to Evensky’s research team.
Evensky has co-authored forth-coming research on using a Saver in conjunction with investment funds to finance retirement.
While AARP mentions a home equity line of credit as an alternative to a reverse mortgage, it points out that they’re usually not as helpful to seniors because it’s not as easy for retirees to qualify for them unless they have significant sources of regular income, and they’re still required to make ongoing monthly payments to the lender.
The article also gives three other ways for homeowners to get cash out of their homes, including selling the home and downsizing/moving to a cheaper location; selling the home to an adult child and renting it back; and sharing your home/renting out some rooms.
Editors note: A previous version of this article attributed information to AARP that should have been sourced to Evensky, as AARP does not give financial advice.
Written by Alyssa Gerace