Monthly Archives: May 2019

What You Should Know About Repaying a Reverse Mortgage

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by Wade Pfau, Ph.D., CFA

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Originally published at Forbes

Repayment of a home equity loan balance may be deferred until the last borrower or non-borrowing spouse has died, moved, or sold the home. Prior to that time, repayments can be made voluntarily at any point to help reduce future interest due and to allow for a larger line of credit to grow for subsequent use. There is no penalty for early repayment.

Full story at https://retirementresearcher.com/what-you-should-know-about-repaying-a-reverse-mortgage/

Choosing Costs for a Reverse Mortgage

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by Wade Pfau, Ph.D., CFA

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Originally published at Forbes

The discussion of reverse mortgage costs has several moving parts. Which type of cost combination to choose depends on how you plan to use the line of credit during retirement. Let me reveal the punchline for the following discussion: Those seeking to spend the credit quickly will benefit more from a cost package with higher upfront costs and a lower lender’s margin rate. Meanwhile, those seeking to open a line of credit that may go unused for many years could find better opportunities with a package of costs that trades lower upfront costs for a higher lender’s margin rate.

Full article at
https://retirementresearcher.com/choosing-costs-for-a-reverse-mortgage/

Most homeowners think a reverse mortgage is a last-resort option. Here’s why they’re wrong

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by Jessica Guerin

Reverse mortgages are traditionally thought of as a last-resort option for seniors who want to stay in their homes but have little resources and few options left. But research has proven otherwise.

https://www.housingwire.com/articles/48858-most-homeowners-think-a-reverse-mortgage-is-a-last-resort-option-heres-why-theyre-wrong

Researchers Say Reverse Mortgages Deserve A Second Look

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by Jamie Hopkins

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What’s the deal with reverse mortgages? This question was addressed in a recent Housing Wealth in Retirement Symposium held on March 23, 2018, in Washington, DC. The event was co-hosted by The American College of Financial Services and the Bipartisan Policy Center. While the symposium took a broader look at housing wealth and retirement security, a constant theme was the role of reverse mortgages under the Home Equity Conversion Mortgage (HECM) program sponsored by the federal government. A key takeaway from the researchers and policymaker presentations at the event was that reverse mortgages are underutilized by seniors today and can help provide added retirement funding security to Americans when used appropriately.

https://www.forbes.com/sites/jamiehopkins/2018/03/30/researchers-say-reverse-mortgages-deserve-a-second-look/#6d9df9ca56b2

Financial advisers should avoid error by omission and consider reverse mortgages

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by Jamie Hopkins

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Over the past few years, I have been very outspoken about the need for financial advisers to incorporate reverse mortgages into their practices, especially those acting under a fiduciary duty of care or doing retirement income planning.

As a professor at The American College of Financial Services, I have woven material about reverse mortgages into the coursework for the CFP, CLU, ChFC and RICP. Of these, the RICP, which focuses specifically on retirement income planning, has had the greatest impact on advisers with regard to reverse mortgages. I have seen eyes open, policies change, and financial planning practices include reverse mortgage conversation in their process.

https://www.investmentnews.com/article/20180122/BLOG09/180129987/financial-advisers-should-avoid-error-by-omission-and-consider

Retirement Income Summit

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InvestmentNews is pleased to celebrate 13 years of the Retirement Income Summit. Much has changed – and much remains to be learned. Join us on May 14th, to discuss how the future is full of opportunity for the financial advice industry, and listen to leading experts debate what’s in store for our economy, markets and the state of retirement income.

WHEN: Tuesday, May 14, 2019 – Wednesday, May 15, 2019
7:45 AM – 4:30 PM Central Time

WHERE: Westin Chicago River North
320 North Dearborn Street
Chicago, Illinois 60654
(888) 627-8359

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Increasing the Sustainable Withdrawal Rate Using the Standby Reverse Mortgage

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by Shaun Pfeiffer, Ph.D.; John Salter, Ph.D., CFP®, AIFA®; and Harold Evensky, CFP®, AIF®

This study investigates maximum real sustainable withdrawal rates (SWRs) for retirement plans that incorporate the use of standby reverse mortgages (SRMs). The SWR is defined as the maximum real withdrawal rate with a minimum 90 percent plan survival rate for a 30-year retirement horizon.

The SRM evaluated in this study is a Home Equity Conversion Mortgage (HECM) reverse mortgage line of credit that is established at the beginning of retirement and is used for retirement income during bear markets. Outstanding loan balances are repaid from the Investment Portfolio (IP) in bull markets.

Monte Carlo simulations were used to estimate the success of the SRM strategy at various real withdrawal rates for a client who has a $500,000 investment nest egg and $250,000/$500,000 in home equity at the beginning of retirement. The $500,000 nest egg is split into a 60 percent stocks and 40 percent bonds IP and a six-month cash reserve.

Retirees who begin retirement in a low interest rate environment (2.3 percent yield on 10-year U.S. Treasury bond) with competitive lending terms and significant home equity relative to the IP stand to benefit the most from an SRM strategy. Interest rates and the size of the initial line of credit relative to the IP are the two factors that are shown to have a significant impact on the SWR for the SRM distribution strategy.

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