Could This Line of Credit Be the Answer?
This week’s article is a supplement to last week’s column where we reviewed some of the uses for monies received from a reverse mortgage. Uses included: paying off a mortgage, buying a new house, and “cashing out.” The fourth use, establishing a line of credit, needs a little more explanation. My recent radio guest, Mary Beth Franklin, contributing editor for Investment News, shared how a reverse mortgage line of credit can be used in ways you may have never imagined.
Social Security Delay. If you delay taking Social Security, your benefits will increase by 8% each year up to age 70. Drawing on a reverse mortgage line of credit could give you the cash flow you need to meet expenses while you wait. For example, if your full retirement age is 66 but you would like to wait until age 70 to collect SS benefits, a reverse mortgage line of credit can be used to help fill the 4-year gap.
Stock Market Safety Net. If you rely on stock market investments for income in retirement, and a large drop (correction or bear market) occurs, the last thing you want to do is withdraw money when the market is down. A reverse mortgage line of credit could provide a cushion while you wait for your portfolio to recover.
No Long-term Care (LTC) Insurance? If you haven’t purchased LTC insurance, a reverse mortgage line of credit could provide a possible solution. Here’s an example: A 62-year old couple has a house worth $625,500 (the maximum value for a reverse mortgage) and no mortgage. They establish a line of credit which has a value at inception of about $327,700. If left untouched, that line could increase to $424,000 in 5 years, and $581,000 in 10 years! This resource could then be tapped for long-term care needs as long as one spouse continued to live in the home.
Fees. There are costs to establish a reverse mortgage line of credit, but monthly interest and mortgage insurance are not charged on the portion of the line of credit that is not used, only on the outstanding balance. Remember, if you have a traditional mortgage, it must be paid off before you receive any cash out, and you are required to continue to pay your home’s real estate taxes, homeowners insurance and HOA fees. If you’re interested in finding out more about a reverse mortgage, or reverse mortgage line of credit, please give my office a call.