Reverse Mortgage

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by Marguerita M. Cheng, CFP® , RICP®

For homeowners over the age of 62, money may be tight due to a turbulent economy, greater longevity, and rising health care costs. And let us not forget the roller coaster ride called the housing market. One way to lessen the unexpected shocks that can jeopardize a comfortable retirement is to consider acquiring a reverse mortgage.

PDF of full article may be found at http://blueoceanglobalwealth.com/pdf/reversemortgage.pdf

Understanding Reverse Mortgages: An Interview with Shelley Giordano

Tools for Retirement Planning

SOA research has shown that non-financial assets are the biggest part of retirement assets for many middle American families. The largest part of non-financial assets by far are home values. Housing is the largest item of spending for older Americans, and housing costs vary greatly by geographic area and type of housing. Reverse mortgages offer a way to use some of the value of the home while still living in it. The SOA post-retirement risk research has indicated that few retirees are taking into account home values in their retirement planning. The 2015 focus groups indicated low interest in reverse mortgages. People thinking about planning have been asking the question: how do we take housing values into account in retirement planning? What are the options? How do we evaluate them? This interview with Shelley Giordano provides information about reverse mortgages and how they are being used today.

Full story at https://toolsforretirementplanning.com/2017/05/06/understanding-reverse-mortgages-an-interview-with-shelley-giordano/

How Does the Line Of Credit for a Reverse Mortgage Work?

by Wade Pfau, Ph.D., CFA

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Originally published at Forbes

A mortgage’s effective rate is applied not just to the loan balance, but also to the overall principal limit, which grows throughout the duration of the loan. How the effective rate is applied may sound technical, but it is an overwhelmingly important point to understand in order to grasp the value of opening a line of credit as early as possible.

Full story at
https://retirementresearcher.com/how-does-the-line-of-credit-for-a-reverse-mortgage-work/

Does Your Retirement Plan Account For Your Own Cognitive Decline?

by Wade Pfau, Ph.D., CFA

Retirement Researcher Logo

With retirement, it is important to consider how declining cognitive skills associated with aging will make it increasingly difficult to self-manage your investment and withdrawal decisions. For households where one person handles money matters, surviving household members will be especially vulnerable to making mistakes when they outlive the family financial manager. Developing a strong relationship with a trusted financial planner can help with both of these matters.

Full story at
https://retirementresearcher.com/does-your-retirement-plan-account-for-your-own-cognitive-decline/

Academic Acceptance for Reverse Mortgages in Retirement Income

by Wade Pfau, Ph.D., CFA

Retirement Researcher Logo

Originally published at Forbes

In a sign that the time had finally come for the idea of coordinated spending from a reverse mortgage, Harold Evensky, Shaun Pfeiffer, and John Salter of Texas Tech University published two articles—beginning with the August 2012 issue of the Journal of Financial Planning—investigating the role of a standby line of credit. They developed conclusions quite similar to the Sacks brothers without knowing of their work.

Full story at
https://retirementresearcher.com/academic-research-and-other-uses-for-reverse-mortgages/

Improving Retirement Income Efficiency Using Reverse Mortgages

by Wade Pfau, Ph.D., CFA

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Originally published at Forbes

Maintaining higher fixed costs in retirement increases exposure to sequence risk by requiring a higher withdrawal rate from remaining assets. Drawing from a reverse mortgage has the potential to mitigate this aspect of sequence risk by reducing the need for portfolio withdrawals at inopportune times.

An HECM line of credit provides a tool that can be used to mitigate the impacts of sequence of returns risk. Since 2012, this has been the focus of a series of research articles highlighting how the strategic use of a reverse mortgage can either preserve greater overall legacy wealth for a given spending goal, or can otherwise sustain a higher spending amount for longer in retirement.

Full story at
https://retirementresearcher.com/improving-retirement-income-efficiency-using-reverse-mortgages/

Calculating Reverse Mortgages

by Wade Pfau, Ph.D., CFA

Retirement Researcher Logo

I have created a calculator that allows users to get a sense of the principal limit available with an HECM reverse mortgage on their home using the most popular one-month variable rate option. The calculator asks for eight boxed inputs, and uses these inputs to calculate the net principal limit. It also provides the amount of income that could be received as a tenure payment for those seeking this option. An optional ninth input also allows for a term payment amount to be calculated. I will describe tenure and term payments in detail later, but the calculator provides sufficient definitions for now.

Full story at
https://retirementresearcher.com/calculating-reverse-mortgages/

Using a Reverse Mortgage to Purchase a New Home

by Wade Pfau, Ph.D., CFA

Retirement Researcher Logo

One option in the broader category of using reverse mortgages for debt coordination for housing is the HECM for Purchase program, which was started in 2009 as a way to use a reverse mortgage to purchase a new home. The government saw enough people using a more costly and complicated two-step process—first obtaining a traditional mortgage to purchase the home and then using a reverse mortgage to pay off that mortgage—and sought to simplify the process and costs.

Full story at
https://retirementresearcher.com/using-a-reverse-mortgage-to-purchase-a-new-home/