ThinkAdvisor Tackles Reverse Mortgages, Highlights Credit Line Option

ThinkAdvisor breaks down reverse mortgages – how they work and more – in its recent Under the Hood article.

Author Mike Patton, president of Integrity Wealth Management, writes that reverse mortgages are being touted by some as ways to solve the income problem of retirees. But, it’s important to understand how they work to determine if a reverse mortgage is the best financial tool for a qualified borrower, he says.

The article notes that proceeds from a reverse mortgage may have a negative effect on a client’s eligibility for means-tested programs, such as SSI and Medicaid, in certain situations. However, in the right instance, establishing a reverse mortgage in advance can be of great benefit to the borrower.

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“It’s best not to wait until a client runs out of money before implementing this strategy,” Patton advises. “Since there is usually no annual fee to maintain a reverse mortgage as a line of credit, why not establish it in advance? Then it will be available if needed.”

A report on reverse mortgages in the Journal of Financial planning also found that early establishment of the Home Equity Conversion Mortgage line of credit is beneficial to retirement portfolio survival.

“The results show an estimated 30-year survival advantage for early establishment,” the report states in its conclusion comparing the early establishment of the loan versus prolonging it as a last resort.

Written by Cassandra Dowell

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  • One of the biggest fallacies in almost all of the articles now on the HECM line of credit is that it grows by the same growth rate as the principal limit. While that may be true, it also may be very false. In fact in some cases as cited in a 2009 RMD article, lines of credit can shrink even though there is no activity in the line of credit during a month. Please see http://rmdaily.wpengine.com/2009/08/03/are-reverse-mortgage-credit-lines-really-shrinking/ for more information.

    It seems like most advocates on a position even scholars can expound on an idea they do not fully understand. The same is true when they call HECM proceeds, “income.” The ignorance expressed in some of the articles is profound.

  • Were any parts of the report accurate or is it mostly continuation of this short list of errors and faulty reasoning? The term “professional malpractice” comes to mind.

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