Fortune: Reverse Mortgages Can Boost Savings for Retired Homeowners

For older homeowners worried about falling short on their retirement savings, home equity can provide a much needed boost if they play their cards right using a reverse mortgage, according to a recent article from Fortune.

The strategy involves obtaining a Home Equity Conversion Mortgage (HECM) line of credit at the earliest eligible, and then letting the loan balance in the credit line increase over time, notes the Fortune article, which cites a strategic take from Jack “The Mortgage Professor” Guttentag.

“Take out a HECM as soon as you’re eligible, at age 62, and hold off using it for as long as you can,” writes Matthew Heimer for Fortune. “Fifteen or twenty years down the road, when homeowners are more likely to have depleted their savings, they can convert the HECM credit line into a so-called tenure payment.”

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The article also notes several “caveats” to using HECMs, such as not being able to draw on the credit line if the borrower permanently leaves his home, or not qualifying for a HECM if the homeowner doesn’t have a “substantial chunk” of his mortgage paid off before acquiring the loan.

“But for other retirees, an approach like Guttentag’s could turn reverse mortgages into more of a cool-headed strategy and less of a Hail Mary pass,” the article states.

Read the full Fortune article here.

Written by Jason Oliva

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  • All of the regular commentators on RMD will have a field day with the original article, especially the part where the borrower earns “interest” on the HECM Line of Credit. Lol.

  • I second Mike’s comment…

    From the article: “…the amount you can borrow is indexed to your age—so the earlier you take one, the bigger the line of credit you can set up. ”

    Do these writers have NO ONE review their pieces for technical accuracy?!?

    At least the slant was positive and it should get some phones to ring, even if the result will be some inquirers turning away in disappointment.

  • Mike Peerless is right on about the original article, I read it as well and sure enough, it states interest earned!

    However, in theory, the line of credit can be utilized in the way it was attempted to be described in the original article and the way Jason presented it. Yes, the line of credit grows at a good growth rate and yes, this can be a great retirement cushion for a senior who takes out a HECM in their earlier years of life!

    The problem remains that the senior or senior’s must discipline themselves by not taking the money out of the line and let it grow for its original intended use.

    Obviously changes occurs in everyone’s life’s and emergencies arise, which could upset the Apple Cart. This can’t be helped. only God knows the course he puts us on.

    However, I think everyone gets my point, if this approach is presented right it could be a great benefit for those younger seniors planning for their later years in life.

    Just think about those seniors who still may be working and really do not need the money to live on presently. If things go as planed, that line of credit, providing they had plenty of equity in their home to start off with, could wind up being the retirement saving grace!!

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

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