As retirees continue to look for different options for living their retirement on financially-sound ground, financial news media is looking at long-established programs in new ways. Such is the case for the reverse mortgage. In a recent article from the Wall Street Journal titled “New Thinking About Reverse Mortgages,” writer Jeff Brown explores the advantages young retirees have when they use a reverse mortgage line of credit.
Rising interest rates are front and center as the reason this loan option may be more appealing to the younger retiree crowd. That’s because the available money in a line of credit grows over time, “by amounts tied to the course of interest rates.” The higher the interest rate grows, the more the available funds could grow. Who would have thought that high interest rates could be appealing? But that’s just as the article states – in the very first sentence.
It goes on to say this is especially beneficial for retirees who get a reverse mortgage line of credit as soon as they turn the reverse-eligible age of 62.
“‘Research has shown that setting up a line of credit as soon as possible, age 62, in order to let it grow and only tapping into the line of credit when needed can substantially improve the long-term sustainability of a retirement-income portfolio, meaning you can make your money last longer,” says Jamie Hopkins, associate professor of taxation at the American College of Financial Services,'” wrote Brown. This doesn’t mean the line of credit will generate income. It means that it can help supplement your income, or serve as an emergency fund that you only access when you need it. Both of these uses can help your retirement savings and income last longer.
The article also discusses some other strategic moves with the line of credit, including “drawing from the credit line when investments like stocks and bonds are down.” In this scenario, the homeowner would borrow money against the line and live off those proceeds, while giving their stocks and bonds time to recover.
While the article does highlight many advantages, it does still come with a few warnings. One being that the line of credit will not be as beneficial if the borrower wastes the money for nonessentials. Another warning is that it may not be the best option if you are looking to use it short term. The article also states something we are known to say from time to time: a reverse mortgage is not for everyone.
It’s best to speak to your financial advisor, do your own research, read more news articles on the reverse mortgage, and even speak to a licensed specialist who can answer your questions with no obligation for you to move forward with the loan. An informed decision is the best decision.