CNBC: Reverse Mortgage May Help Provide ‘Fast Cash’ During Pandemic

A Certified Financial Planner (CFP) recommends that for homeowners looking for a fast source of cash during the coronavirus pandemic, home equity – and specifically a reverse mortgage – could be an avenue worth exploring.

This is according to Jeffrey Levine, director of advanced planning at Buckingham Wealth Partners in Long Island, N.Y. to personal finance reporter Greg Iacurci in a new column at CNBC.

“Homeowners can tap a home-equity line of credit or reverse mortgage, or consider cash-out mortgage refinancing, especially with interest rates so low,” writes Iacurci based on Levine’s input.

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While homeowners have options beyond a reverse mortgage including a cash-out refinancing transaction, reverse mortgages can provide seniors with a plausible path toward accessing their home equity if not determined to seek out another alternative, Iacurci says. A cash-out refinance also has the potential to “drag out loan repayment for decades,” he writes.

“A reverse mortgage is only available to those age 62 and older,” writes Iacurci. “It’s a type of non-recourse loan, meaning borrowers would never owe more than the value of their home. There are risks — for example, similar to a traditional mortgage, lenders could foreclose on a home if borrowers don’t keep current with property tax and maintenance.”

Alongside a reverse mortgage, other options that can be leveraged to access cash during this time can include margin loans to borrow against the value of their taxable investments, according to input from Charlie Fitzgerald, principal of Moisand Fitzgerald Tamayo in Orlando, Fla.

Taxable investments can also provide a source of income, Iacurci writes.

“When it comes to taxable investments, consider selling fixed income (like bonds) and cash-equivalents (such as money market funds) before stocks, which are likely trading at a steep discount given the recent market selloff,” he says. “Those who sell investments with a net gain will have to pay capital-gains taxes. Those who sell at a loss could benefit from tax-loss harvesting.”

This is according to the input of Stephen Rischall, co-founder of Navalign Wealth Partners in Los Angeles, Calif.

Read the article at CNBC.

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  • Even though common in the industry, the last part of the following quotation is false: “A reverse mortgage is … a type of non-recourse loan, meaning borrowers would never owe more than the value of their home.”

    I do not claim to understand the meaning of nonrecourse when it comes to all proprietary reverse mortgages. With a HECM, until an event triggering payoff of a HECM, the borrower owes the full amount of the unpaid principal balance (UPB). If the payoff is due to the borrower wanting to remove the loan and retain title to the home, the entire UPB must be paid in full despite the appraised value is on the collateral.

    The following is a very questionable conclusion: “’When it comes to taxable investments, consider selling fixed income (like bonds) and cash-equivalents (such as money market funds) before stocks, which are likely trading at a steep discount given the recent market selloff,’ he says. ‘Those who sell investments with a net gain will have to pay capital-gains taxes. Those who sell at a loss could benefit from tax-loss harvesting.’” While the reader must beware of the quotation in its entirety, it got off on the right foot by telling readers to “consider.”

    So what is wrong with the investment recommendations? Instead of making decisions based solely on current market conditions, those with significant portfolios should seek cash sources such as reverse mortgages to delay any rash decisions on what to sell and what to keep. Planning with a CFP, RIA, or CPA can not only help in confirming what investments to sell (or even buy) but it can also help investors know when to buy, when to sell, how to properly allocate investments such as stocks and bonds.

    With most bond holdings, the bonds currently being held are generally not being discounted but they have a premium value since bonds being issued currently have lower interest rates. Many bondholders can sell such bonds at (taxable capital) gains.

    Yet not all investors will pay capital gain taxes on their capital gains. For example, investors who have a combination of carry forward capital losses and current capital losses that exceed the total capital gains recognized in a tax year will not pay capital gain taxes and may be able to apply up to $3,000 of the remaining capital losses against ordinary income, thus reducing the overall income tax liability. While capital loss harvesting can be fruitful, it can also be overdone and may mean that some securities get sold when they should have been retained. This is why the opinions of CFPs, RIAs, and CPAs should be sought; however, vetting these individuals may indicate who will do the best job for your needs.

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