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MarketWatch: 4 Reasons to Consider a Reverse Mortgage in Retirement

As the potential for sticker shock in retirement increases each year, retirees may want to consider a reverse mortgage, or more specifically, a reverse mortgage line of credit, according to an article from MarketWatch.

A recent book published by Wade Pfau, a retirement income researcher, titled “The Retirement Researcher’s Guide to Reverse Mortgages,” focuses on the use of a Home Equity Conversion Mortgage (HECM) as part of a retirement plan.

Pfau’s book presents many reasons why reverse mortgage products can be valuable tools in retirement, such as how certain reverse products can help borrowers avoid “sequence of returns” risk.

“That is the risk that you have the bad timing of retiring—and pulling money out of your investment account—just as the stock market tanks,” the article says. “An investment account that’s depleted both by withdrawals and market losses may never recover, making it likelier that a retiree outlives her assets.”

Currently, interest rates are also low, according to Pfau’s book, which can provide an educational reverse mortgage guidebook for potential borrowers. When interest rates are lower, the higher percentage of equity homeowners can pull from the equity they’ve built up over the years.

Another “pro” of using a reverse mortgage in retirement is that non-borrowing spouses in a reverse mortgage are protected, the article points out.

“The reverse mortgage rules have always required that borrowers be 62 years and older,” says the article. “In the past, if a married couple wanted to take out a reverse mortgage and one of the spouses was too young, the younger spouse often would be removed from the house title, putting that spouse—the ‘non borrowing spouse’— in the position of potentially having to sell the house to pay the loan if the older spouse died first.”

The new rule however, protects both spouses regardless of age.

Even though there can be many advantages to using reverse mortgages in retirement, there are still a number of reasons why the products may not work for every homeowner. Research is the key.

Read the full MarketWatch article.

Written by Alana Stramowski