Because the Home Loan Line of Credit (HECM) cannot be canceled like conventional lines of credit, a reverse mortgage can provide access to an “invaluable tool” for planning income regardless of a person’s wealth and can help preserve assets for a spouse. or other heirs.
This is stated by Guy Paredes, a professional financial planner specializing in what he describes as “retirement readiness,” through his New Jersey-based Rockdale Financial Services. Paredes describes his path to understanding the potential planning benefits that reverse mortgages can provide to clients in a column he maintains for The Registry, the official journal of the International Association of Registered Financial Consultants (IARFC).
“In my recent research on the subject, I’ve learned how valuable this strategy can be in early use and during retirement,” Paredes writes in his column. “It is noteworthy that no payments are required, so the cash flow is not diminished.”
Paredes goes on to list 12 potential uses for HECM when planning for retirement in the remainder of the column, including its use to pay off current mortgages and support existing cash flow; use it to cover “basic retirement expenses,” including property taxes and utility bills; and the use of the HECM line of credit to avoid consistency of return risk if the market falls. Financial planners, including Dr. Wade Pfau, have previously described this methodology as a way to avoid leveraging investments until the market recovers.
A reverse mortgage can also be used in place of social security payments if someone wants to postpone receiving such benefits until they are older; and Paredes also indirectly refers to the HECM for Purchase (H4P) program, which uses reverse mortgages to help finance the purchase of a new home.
While recognizing that using a home as an asset can be a difficult decision for some, it can also be shortsighted to view a home as a “dead asset,” especially if it could allow unconventional cash flow options to be explored, ”he says.
“For many people, the home is one of their most valuable assets and should not be considered a ‘dead asset,’” he says. “[There are] great ways to use this asset and get the most out of it. “
While not everyone will be eligible for a HECM, and there are certain restrictions on such loans among a select number of Home Owner Associations (HOA), it is still a decent option for those who can or wish to go through the required reverse mortgage education processes. an adviser approved by the Federal Housing Administration (FHA), he writes.
Find out more about last issue magazine MAFC “Register”.