Reverse Mortgage Strategies for the Middle Market

Helping middle income retirees realize that a Home Equity Conversion Mortgage can be used as a retirement tool has been an uphill battle for the reverse mortgage industry.

In a recent webinar held by the Learning Resource Center, Shelly Giordano, principal of Longevity View Associates, chair of the Funding Longevity Task Force and author of “What’s the Deal with Reverse Mortgage”, shared strategies and specific situations where a reverse mortgage could be extremely helpful for retirees regardless of how much money they have.

Using a reverse mortgage to offset market volatility was the first strategy Giordano shared. This is when a borrower takes out a reverse mortgage line of credit and uses it only when the market is down and the borrower would lose money if he or she took funds out of his or her investments, she explained.

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Sometimes people use this strategy with a Home Equity Line of Credit (HELOC) rather than a HECM line of credit. But using a HELOC instead of a HECM is not fool proof. A HELOC can be frozen or cancelled at any time, Giordano explains.

“In June 2008 over $6 billion in HELOC credit was frozen,” she said “And of course, that’s when people were probably trying to tap into it the most.” With a HECM line of credit however, the funds can’t be frozen or cancelled at any time.

Gray divorce was also brought up as one situation where a HECM could work well if either spouse is trying to purchase another home after the divorce. In order to divide assets, the marital home often must be sold, Giordano explains.

A HECM for Purchase could be used so both parties could buy a new home with the same value of their previous home without tapping into other assets like retirement savings.

One way two people could do this is each spouse would take half of the money from selling the marital house. They each would then apply for their own HECM for purchase transaction and use the proceeds, combined with their half of the funds from their previous home to purchase a home that costs an equal amount.

Another way tapping into home equity can be beneficial in retirement is if a senior wants to hold off on taking their Social Security to increase payments later in life.

A HECM could be a good option to make up the difference in the meantime, Giordano explains. Even taking out a reverse mortgage and using a line of credit only when needed instead of collecting Social Security for five or eight years can drastically increase Social Security payments down the road.

There are numerous ways homeowners can boost their retirement income by utilizing home equity. But to do so, homeowners need to be educated on the details and realize they don’t need to be in dire straits to apply for a reverse mortgage.

“The worst way to even think about incorporating housing wealth into your retirement plan is to use it as a last resort,” Giordano says.

Written by Alana Stramowski

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  • This is a very good article with many tremendous tools to use out in the field.

    I don’t know if I entirely agree with Shelly Giordano when she says “The worst way to even think about incorporating housing wealth into your retirement plan is to use it as a last resort”.

    There are many reasons that may require one’s housing wealth to be incorporated into a seniors retirement plan. One main reason is if the main bread winner of the household lost his or her job through no fault of their own. Quick loss of income may force some seniors to use the HECM as a last resort replacement of that income lost!

    What about catastrophic medical expenses, this a great reason for having to use ones home equity wealth as a last resort method? There are many more examples but I think everyone gets the point.

    However, like I said, the article was overall very good, with the exception of the statement I brought up!

    John A. Smaldone
    http://www.hanover-financial.com

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