I started my career as a Reverse loan consultant almost 14 years ago and at that time, there was only one option for seniors and not the choices that we have today. In particular, the last two years have seen many changes to the loan program, far too many to mention here. But they have become safer with new regulations in place to protect the borrower and are better than any time in the past.
The original loan wasn’t that attractive because it adjusted monthly and had a 10% Life time Cap on it, but in the following years there have been numerous changes to the FHA HECM program. Fixed rates are one choice, but now the Line-of-Credit ( HECM ) adjusts annually instead of monthly, with a low 5% Life Time Cap and has turned out to be a very valuable tool in retirement planning.
Reverse loans are now being readily embraced by Financial advisers and CPA’s as a viable alternative to eliminating the need to draw down on retirement savings and as we move into a new year, the acceptance of this important option for retirement longevity has become not only more important but more accepted.
USA Today published an article discussing this very topic and here is a summary of it and why using a Reverse mortgage is a smart plan.
USA Today: Using a Reverse Mortgage to Protect Other Investments.
Posted By Jason Oliva On December 29, 2015 in Reverse Mortgage Daily
“The reverse mortgage line of credit continues to gain acknowledgment from the mainstream press for its ability to help retirees protect their other investments such as IRAs.
In a recent column, USA Today personal finance and retirement contributor Robert Powell fielded a question from one reader who said she and her husband are considering converting their traditional IRA to a Roth IRA. The reader, Brigitte Kelley, 67, of Milledgeville, Ga., also expressed her husband’s willingness to do a reverse mortgage.
After addressing the IRA conversion inquiry, advising Mrs. Kelley to consider her future tax rate, among other important considerations, Powell then tackles the reverse mortgage question.
“As for the reverse mortgage, some experts suggest applying for a reverse mortgage with a line of credit as soon as possible,” Powell writes. “Why might you do this? Having a reverse mortgage with line of credit in place gives you the option of taking money out of your house instead of your IRAs when markets are down.”
Powell then cites a study published this year from Wade Pfau of The American College of Financial Services, which describes in detail six strategies for incorporating home equity into a retirement income plan through the use of a reverse mortgage.
While retirees should consult with a financial adviser to determine which strategy might work best for their retirement plan, it may be worth considering getting a reverse mortgage earlier in retirement as opposed to later.
“But what Pfau’s study did conclude without equivocation was this: ‘A key theme is that there is great value for (people) to open a reverse mortgage line of credit at the earliest possible age,’” Powell writes.”
Written by Jason Oliva