Good article on Forbes.com today titled - Wise Reverse Mortgages Can Be the Saving Grace of Unprepared Retirees by Wade Pfau.
A saving grace for those that use a Reverse Mortgage wisely may hold the key. There is no rush to spend your home equity. This article does a nice job introducing a complex use of a Reverse and putting it into layman’s terms by stating that most people spend down their liquid assets first and save their home equity for last. By having access to your home equity and spending it wisely and proportionally, along with your invested assets, the presumption is that your overall assets will have a longer life. This is logical and makes perfect sense but the downside is that, as mentioned, it goes against human nature. The wise homeowners that take the time to gain a working knowledge of how a HECM Reverse Mortgage has been masterfully designed will be rewarded. The program has a built in growth factor that can be used to your advantage. This can be used as the underlying leverage that will help retirees extend their nest egg and gain the advantage in a simplistic fashion. The growth factor takes into account the untapped portion of the available home equity, or otherwise termed the principal limit, and allows it to compound annually thereby providing increasing available credit each year as the homeowner(s) age. The significance of this is that the balance of the loan, assuming it was initially used to pay off a small mortgage, and the available growing credit line could easily eclipse the home value over time. This is difficult to understand and must be illustrated to make sense. Most people have difficulty explaining it and as you can see, it was only touched on with this article. If you are serious about a reverse mortgage, you need to understand the growth factor and the non-recourse aspect of the loan. This will help move you toward wise. Wise ole owl says … Hootie Hoo.