Reverse Mortgage Traditional Use

Found this article on the use of a credit line in a reverse mortgage. If you any questions please let me know. Enjoy!

 

February 27th, 2012  |  by Elizabeth Ecker Published in NewsReverse Mortgage

Two researchers proved through analysis published in February that a reverse mortgage credit line can lead to “substantially greater cash flow survival probabilities” for people who are planning for retirement.

Published in the Journal of Financial Planning, Barry Sacks, Ph.D. and Stephen Sacks, Ph.D. detail three strategies for using home equity in the form of a reverse mortgage credit line to increase the safe maximum initial rate of retirement income withdrawals.

Examining a last resort strategy; a credit line strategy used after other investments have shown negative returns; and drawing upon the reverse mortgage credit line first, before other forms of investment, Sacks and Sacks find that the retiree’s portfolio plus home equity net worth after 30 years is about twice as likely to be greater when one of the latter two strategies is used.

“The conventional wisdom holds that home equity, drawn upon in the form of a reverse mortgage (discussed below) or similar product, should be used as a last resort, only if and when the account is exhausted,” the authors write. “This is a rather passive approach. We show that the probability of cash flow survival is substantially enhanced by reversing the conventional wisdom.”

The reverse mortgage is not necessarily the best option for everyone, they write, but for those who do decide to take a reverse mortgage, the research shows how it can best benefit them in retirement. The use of a credit line planned in advance is far more beneficial than the “last resort” strategy, they find.

View the full reverse mortgage analysis.

Written by Elizabeth Ecker

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