Since a Home Equity Conversion Mortgage (HECM) line of credit, unlike regular lines of credit, is non-terminable, a reverse mortgage can provide access to an “invaluable tool” for income planning and helping to grow a spouse’s wealth regardless of an individual’s wealth received or other heirs.
This is according to Guy Paredes, a professional financial planner who specializes in what he calls “retirement planning” through his New Jersey-based firm Rockdale Financial Services. Paredes describes his way of understanding the potential planning benefits of a reverse mortgage for clients in a column he wrote for The Register, the official magazine of the International Association of Registered Financial Consultants (IARFC).
“In my recent studies on the subject, I have learned how valuable this strategy can be when used early and in retirement,” Paredes writes in his column. “What is remarkable is that no payments are required, so the cash flow is not reduced.”
Paredes goes on to list 12 possible uses of a HECM in retirement planning over the remainder of the column, including its use to pay off an ongoing mortgage and boost existing cash flow; Used to cover “essential retirement costs” including property taxes and utility bills; and the use of an HECM line of credit to avoid the risk of a series of returns in falling markets. Financial planners, including Dr. Wade Pfau, have previously described this method as a way to avoid investing until the market recovers.
A reverse mortgage can also be used in place of social security benefits if someone wants to defer these benefits until they’re older; and Paredes also indirectly cites the HECM for Purchase (H4P) program, which uses a reverse mortgage to help finance a new home purchase.
While using your home as an asset can be a difficult decision for some, thinking of your home as a “dead asset” can also be short-sighted, especially if it could explore unconventional cash flow options, he says.
“For many people, their home is one of their most valuable assets and shouldn’t be viewed as a ‘dead good’,” he says. “[There are] great ways to capitalize on this asset and use it to your best advantage. “
While not everyone will qualify for an HECM and there are certain restrictions on such loans with a select number of homeowners associations (HOAs), it is nonetheless a worthwhile option for those able or willing to complete the required educational processes with a reverse mortgage to go through counselors as approved by the Federal Housing Administration (FHA), he writes.
Further information can be found on the latest edition of the IARFC magazine “Register”.