When Is a Reverse Mortgage a Good Idea?

4 Reasons Why the Answer May Be Now.

With home values going up and stocks going down, getting a reverse mortgage now could help seniors create a new source of income – and maximize its benefits.

Through the first part of this year, good financial news for seniors has been hard to come by. As reported by the U.S. Bureau of Labor Statistics through June 2022, the year-over-year inflation rate is 9.1%, the highest in four decades – which affects everyone, but hits those on a fixed income even harder. This leaves many older adults looking for a new source of income just to meet their everyday expenses, from food to gasoline and health care.

Unfortunately, it’s not a good time for them to draw additional funds from their investments to meet the demand. The stock market just suffered its worst half-year performance in more than a half century,1 so “selling low” would magnify the effect of the downturn – and could shorten the life of their portfolios. The ideal long-term scenario would be to “wait it out” and leave assets invested until the markets recover – but how can you do that when you need more cash to pay for just about everything today?

If you’re age 62 or older, home is where your help may be.

A Home Equity Conversion Mortgage (HECM), or “reverse mortgage,” lets you tap into some of your hard-earned home equity – giving you another source of cash to help fund your retirement, counteract the effects of inflation, and live more comfortably.

It’s called a reverse mortgage because unlike a traditional mortgage, the loan doesn’t come due until you leave the home – there are no monthly mortgage payments required.2 In fact, the proceeds from a HECM are first used to pay off your existing mortgage, freeing up that money for you to use elsewhere. Leftover funds are yours to use for any purpose.

Here are four reasons why tapping into your home equity through a reverse mortgage now could be part of the solution to today’s – and tomorrow’s – financial challenges.

Reason #1: Home values are at all-time highs.

One statistic going in a favorable direction for seniors is home value. By the end of 2021, homeowners aged 62 and older had amassed an all-time record $10.1 trillion in combined housing wealth.3 In fact, for many senior homeowners, it’s their largest asset – not stocks, pensions, or savings as you might expect.

This home equity can be accessed and used as you wish to help stem the tide of inflation, or provide a financial “safety net” for future expenses such as long-term home care – while giving your invested assets time to recover.

But why now? While it’s impossible to predict which way the housing market is going to go, the fact that it’s at an all-time high makes it a good time to act before it starts to fall again. Since home value is one of the factors that determines how much equity you can access – your age and the interest rate on the loan are the others – you can maximize your available cash by taking advantage of today’s favorable housing market.

What’s more, a reverse mortgage is a non-recourse loan, so you never have to worry about being “upside down” on a reverse mortgage. Even if your home loses value over time, you can never owe more than your home is worth. This protection for you and your heirs is just another reason to lock your high home value into a reverse mortgage now.

Reason #2: Today’s reverse mortgage line of credit cannot be reduced tomorrow.

With the flexibility a reverse mortgage provides, you can receive the proceeds as a lump sum, in monthly payments, as a line of credit, or any combination of the three. And unlike a home equity line of credit (HELOC) a reverse mortgage line of credit can’t be capped, reduced, frozen, or canceled, as long as you meet the terms of your loan.2 It’s money that will be there when you need it for any future expenses, giving you invaluable peace of mind.

A reusable reverse mortgage line of credit can be a helpful financial tool when you use it as part of your overall retirement plan. You can establish it now and make strategic draws from it, pay it back, and then draw on it again as needed. Or you can simply let it sit until you need it as a “safety net” to help cover unexpected expenses, home repairs and upgrades, health care costs, or long-term home care.

Reason #3: Reverse mortgage proceeds are largely unaffected by the stock market

The amount of home equity you can access with a reverse mortgage, including the line of credit, is largely unaffected by stock market volatility. Once you have your available proceeds locked in, they cannot be reduced by the market or by the lender—which is why taking out a reverse mortgage now can help you prepare for whatever comes next.

You can use reverse mortgage assets to help cover rising expenses – and avoid making withdrawals from your investment accounts during market slumps, which can significantly reduce the longevity of your portfolio, especially early in retirement.

Recent research published in the Journal of Financial Planning found that using a reverse mortgage as an added source of income during market downturns could help older adults keep their portfolios on track.

Reason #4: Interest rates are rising, so lock in yours before they go higher.

After years and years of historically low interest rates, the Federal Reserve has begun to aggressively increase interest rates in an attempt to stem the tide of inflation, and another increase may be coming soon.4 Compared to past eras, current rates are still relatively low – but today’s trend is not a friend of the borrower. So if you’ve been considering a reverse mortgage, it may be a good idea to act now – before the Fed acts again.

More financial advisors are recommending reverse mortgages as part of a strategic retirement funding plan.

“This is still a great opportunity to consider a reverse mortgage,” says Wade Pfau, PhD, a principal and advisor with Tysons, Virginia-based McLean Asset Management. “There’s been a big increase in housing prices, and interest rates are still low, historically speaking.”5

Ask your financial advisor if a reverse mortgage may be a good fit for your retirement funding plan. And to learn more about reverse mortgages, ask the experts at Longbridge Financial. We’re committed to educating seniors about reverse mortgages, so you can make an informed decision.

To learn more reverse and get a free info kit, fill out the form on this page, or call Longbridge at 855-523-4326. There’s no cost and no obligation.

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