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.”
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