For those Americans over the age of 62 who have recently seen the values of their retirement accounts shaken by the ongoing effects of the COVID-19 coronavirus pandemic, the ability for a reverse mortgage to take some pressure off of individuals and their accounts should not be overlooked. This is according to a column appearing in the newspaper the Novato Advance, and published at Insurance News Net.
“To give your investment portfolio time to recover [from the COVID-19 economic shock], you must reduce withdrawals,” the column reads. “But you may need help paying the bills. This is where a reverse mortgage can help.”
Leveraging the value of your home using a reverse mortgage line of credit can allow a borrower to avoid tapping their savings or investments until the market stabilizes, the column reads. This is based on input from Shelley Giordano and Torrey Larsen, co-founders of the Academy for Home Equity in Financial Planning at the University of Illinois Urbana-Champaign.
“There’s evidence now that homeowners who prepared for a bear market are avoiding having to sell out of a losing portfolio, which is so devastating,” Giordano says. “Reverse mortgage servicers have reported that the draws people are taking from reverse mortgages are significantly larger and more frequent than before the downturn. Folks with reverse mortgages in place are relying on them as a substitute for portfolio distributions.”
Other benefits of the reverse mortgage line of credit include that it can never be frozen, reduced or canceled as long as the loan terms are met; the borrower can never owe more on the loan than the home is worth (non-recourse); an unused line of credit continues to grow; and no monthly principal and interest payments are required, unlike a Home Equity Line of Credit (HELOC), Giordano explains.
When a retiree is making determinations about how they will be planning for their finances later in life, the home is an asset that should simply not be overlooked. It often is, however, and it leads to some seniors not having an entirely accurate picture of the resources that are available to them, especially if they already have the inclination to explore how home equity can be deployed as a part of a holistic retirement plan.
“The house represents about two-thirds of the average American’s net worth,” Giordano explains. “That’s a pretty big asset that isn’t being used.”